UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No fee required)
For the quarterly period ended December 31, 2006
[ ] 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
(Registrant's telephone number, including area code)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. As of February 13, 2007, the Company had:
Number of Shares of Common Stock
15,078,598
Transition Small Business Disclosure Format (check one): Yes No X
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Table of Contents
FORM 10-QSB
VERITEC, INC.
INDEX
Page(s)
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PART I. FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis or Plan of Operations 9
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 1A. Risk Factors 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits 17
Signatures 17
Exhibits Index 18
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2006 2006
------------ ------------
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash $ 635,505 $ 898,424
Accounts receivable, net 19,111 59,173
Note receivable 100,000 --
Inventories 11,611 7,495
Prepaid expenses 5,650 4,650
------------ ------------
Total Current Assets 771,877 969,742
Property and Equipment, net 47,072 21,088
Software License 100,000 --
------------ ------------
Total Assets $ 918,949 $ 990,830
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 103,116 $ 37,400
Accrued expenses 116,948 285,372
------------ ------------
Total Current Liabilities 220,064 322,772
Prepayment on Stock and Subscription Receivable -- 92,008
------------ ------------
Total Liabilities 220,064 414,780
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, 15,078,598 shares issued 150,786 150,786
Subscription receivable (292,400) (386,138)
Additional paid-in capital 13,513,447 13,420,192
Accumulated deficit (12,673,948) (12,609,790)
------------ ------------
Total Stockholders' Equity 698,885 576,050
------------ ------------
Total Liabilities and Stockholders' Equity $ 918,949 $ 990,830
============ ============
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See notes to condensed consolidated financial statements.
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
December 31,
-------------------
2006 2005
-------- --------
Revenues:
License and other $ 92,569 $121,560
Infringement 402,264 119,535
-------- --------
Total Revenues 494,833 241,095
Cost of Sales 10,428 16,286
-------- --------
Gross Profit 484,405 224,809
-------- --------
Operating Expenses:
Selling, general and administrative 392,577 279,606
Research and development 107,491 33,972
-------- --------
Total Operating Expenses 500,068 313,578
-------- --------
Loss from Operations (15,663) (88,769)
Interest Income 7,770 3,525
-------- --------
Net Loss $ (7,893) $(85,244)
======== ========
Loss Per Common Share - Basic and Diluted $ (0.00) $ (0.01)
======== ========
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See notes to condensed consolidated financial statements.
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended
December 31,
-------------------
2006 2005
-------- --------
Revenues:
License and other $191,897 $618,699
Infringement 661,928 179,053
-------- --------
Total Revenues 853,825 797,752
Cost of Sales 15,538 33,643
-------- --------
Gross Profit 838,287 764,109
-------- --------
Operating Expenses:
Selling, general and administrative 724,057 581,584
Research and development 194,895 58,199
-------- --------
Total Operating Expenses 918,952 639,783
-------- --------
Income (Loss) from Operations (80,665) 124,326
Interest Income 16,507 5,569
-------- --------
Net Income (Loss) (64,158) 129,895
======== ========
Income (Loss) Per Common Share - Basic and Diluted $ (0.00) $ 0.01
======== ========
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See notes to condensed consolidated financial statements.
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
December 31,
---------------------
2006 2005
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (64,158) $ 129,895
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation 4,195 3,719
Stock options compensation 75,882 --
Stock compensation 7,500 --
Changes in operating assets and liabilities:
Accounts receivable 40,062 1,153
Inventories (4,116) 2,269
Prepaid expenses (1,000) 5,558
Accounts payables and accrued expenses (97,401) (106,123)
--------- ---------
Net cash provided (used) by operating activities (39,036) 36,471
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Advance on note receivable (100,000) --
Purchases of equipment (23,833) --
Purchases of software license (100,000) --
--------- ---------
Net cash used by investing activities (223,883) --
--------- ---------
NET INCREASE (DECREASE) IN CASH (262,919) 36,471
CASH AT BEGINNING OF PERIOD 898,424 432,518
--------- ---------
CASH AT END OF PERIOD $ 635,505 $ 468,989
========= =========
NONCASH ACTIVITIES
Applied accrued expenses and prepayment on
subscription receivable to subscription
receivable $ 111,111 $ 111,111
Purchase of assets of Secure Environments, Inc.
in year end accrued expenses $ 6,296 $ --
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See notes to condensed consolidated financial statements.
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 by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended December 31, 2006, are not necessarily indicative of the results that may be expected for the year ended June 30, 2007. 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, 2006. The Condensed Consolidated Balance Sheet at June 30, 2006 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, a two-dimensional barcode technology originally invented by the founders of Veritec under United States Patent Nos. 4,924,078, 5,331,176 and 5,612,524. As more fully described below, these patents are the property of VCode. The Company's 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 enables 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. The Company has also developed a Secured Identification System based upon its proprietary VSCode and VeriCode(R) Symbology. The Company's Secured Identification System enables the storage of images, biometric information and data for contemporaneous verification of an individual's unique identity. In addition to the United States patents owned by VCode, Veritec 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's core business is the sale of its Multi-Dimensional Matrix Symbology together with its proprietary software products for the writing and reading thereof. Veritec owns a wholly owned subsidiary, VCode, a Minnesota corporation with offices also at 2445 Winnetka Avenue North, Golden Valley, Minnesota 55427.
In November 2003, Veritec formed VCode to which it assigned United States Patent Nos. 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 License 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) (collectively Acacia). The Exclusive License Agreement provides that all expenses related to the enforcement and licensing of the patents will be the responsibility of VData, with the parties sharing in the net proceeds as specified under the terms of the agreement, arising from enforcement or licensing of the patents.
D. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Infringement revenue is recognized upon completion of all required terms under the agreement with VData and collection is reasonably assured. As a result, all infringement revenue has been recorded in the quarter it was received. Revenues from software sales, product sales and engineering are recognized when products are shipped or services performed. License fees are recognized upon completion of all required terms under the agreement. The process typically begins with a customer purchase order detailing its hardware specifications so the Company can customize its software to the customer's hardware. Once customization is completed, the Company typically transmits the software to the customer via the Internet. Revenue is recognized at that point. Once the software is transmitted, the customers do not have a right of refusal or return. Under some agreements the customers remit payment prior to the Company having completed customization or completion of any other required services. In these instances, the Company delays revenue recognition and reflects the prepayments as customer deposits.
Software License
The software license from RBA International, Inc. is capitalized at cost and amortized using the straight line method over a life of five years.
E. NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing income
(loss) available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted net income (loss) per common share,
in addition to the weighted average determined for basic net income (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. Potentially dilutive instruments include stock options, warrants and
preferred stock. For three months ended December 31, 2006 and 2005, and the six
months ended December 31, 2006, the stock options, warrants and preferred stock
were antidilutive and, therefore, were not included in the computations of
diluted net loss per common share.
The weighted average shares outstanding were 15,078,598 for all periods presented.
Diluted net income per common share for the six months ended December 31, 2005, was computed as follows:
Net income for per share computation $ 129,895
===========
Weighted average shares outstanding 15,078,598
Incremental shares from assumed exercise or conversion of dilutive
instruments:
Options and warrants 15,000
Preferred stock 10,000
-----------
Shares outstanding - diluted 15,103,598
===========
Net income per common share $ 0.01
===========
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F. STOCK-BASED COMPENSATION
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123(R), "Share-Based Payment", in December 2004, which requires the cost of employee compensation paid with equity instruments to be measured based on grant-date fair values and recognized over the vesting period. The new rule allowed companies to implement SFAS No. 123(R) at the beginning of their fiscal year that begins after June 15, 2005. Under the new rule, SFAS No. 123(R) became effective for the Company on July 1, 2005. Adoption of SFAS No. 123(R) had no impact on the Company's financial statements as all options were fully-vested at the adoption date.
The Company has agreements with certain employees and consultants that provide for five years of annual grants of options to purchase shares of the Company's 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. For the three months ended December 31, 2006, the Company issued 6,666 options under one such agreement. At December 31, 2006, the Company has commitments under these agreements to issue grants of options of 30,000 for fiscal year 2007, 70,000 options annually for 2008 through 2010, and 40,000 options in fiscal 2011.
The weighted-average fair value of options granted for the three months ended December 31, 2006, was $0.28 per option and was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions: risk free interest rate - 4.51%, dividend yield - 0%, volatility - 6.27%, and expected life - 3 years. Volatility was extracted from the small market capitalization under computer service subsector. Stock-based compensation expense of $9,880 and $0 was recognized in the three months ended December 31, 2006 and 2005, respectively. Stock-based compensation expense of $75,882 and $0 was recognized in the six months ended December 31, 2006 and 2005, respectively. As of December 31, 2006, there was $17,133 of unrecognized compensation costs related to stock options. These costs are expected to be recognized over the next two quarters.
A summary of stock options is as follows:
Number of Option Price
Shares Per Share
--------- -------------
Balance at June 30, 2006 30,000 $2.04
Granted 40,000 $0.25
Granted 46,666 $0.94 - $1.36
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Balance at December 31, 2006 116,666* $0.25 - $2.04
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* 40,000 shares fully vested, 76,666 shares vest in fiscal 2007; 5.2 years remaining contractual life.
There was no option activity for the three months end December 31, 2005. The Company had 15,000 options outstanding and exercisable at $0.80 per share at December 31, 2005; these options expired unexercised.
The Company has an agreement with an employee to issue 5,000 shares of the Company's common stock beginning August 2006 and 2,000 shares annually thereafter for five years. Compensation expense related to this agreement was $7,500 for the six months ended December 31, 2006. The issuance of the stock remains unsatisfied.
The board of directors authorized the Chief Executive Officer (CEO) to issue up to 1,000,000 shares of the Company's common stock in the form of options or stock bonuses to employees and consultants. At December 31, 2006, stock and stock options totaling 424,166 have been committed under this authorization. In January 2007, an additional 15,000 shares of common stock and 140,000 of stock options have been committed under this authorization bringing the total commitment to 579,166.
G. NOTE RECEIVABLE
In December 2006, the Company loaned $100,000 to RBA International, Inc. in exchange for a promissory note from RBA International, Inc. The unsecured note bears annual interest at 10%, was due January 31, 2007 and can be prepaid at any time without penalty. In January 2007, the Company agreed to extend the note to March 1, 2007, and apply all charges incurred by the Company for services performed and/or software purchases against the note and accrued interest until such time that the note is paid in full.
H. NOTE PAYABLE - RELATED PARTY
In November 2003, a consultant and shareholder of the Company loaned $50,000 to the Company for working capital. The repayment of the note required the issuance of 2,500 shares of common stock, among other items. This note payable was repaid in August 2004. The issuance of the 2,500 shares of common stock remains unsatisfied.
I. SUBSCRIPTION RECEIVABLE
In September 1999, as required under its 1997 bankruptcy plan of reorganization, The Matthews Group (a stockholder and related party) received 275,000 shares of Series H convertible preferred stock in exchange for a promissory note in the amount of $2,000,000 (subscription receivable). The promissory note is collateralized by deeds of trust to real property located in California and Minnesota owned by Van Tran and Larry Johanns, the sole principals of The Matthews Group. The real property collateralizing the promissory note has a fair value in excess of all encumbrances including the remaining principal balance of the promissory note to which Veritec is the beneficiary. The promissory note originally required 108 monthly non-interest bearing payments of $18,519. Imputed interest on the subscription receivable is excluded from operating results and is instead credited directly to additional paid-in capital. As the principal amount of the promissory note is reduced, The Matthews Group has the right to require the Company to release encumbrances against the real property collateralizing the subscription obligation.
From time to time, The Matthews Group has made prepayments against its subscription obligation. Prepayments are nonrefundable and noninterest bearing.
J. OTHER SIGNIFICANT EVENTS
In January 2007, the Company loaned $300,000 to RBA International, Inc. in exchange for a promissory note from RBA International, Inc., and related individuals. The note bears annual interest at 10% and is due on or before March 1, 2007 and is collateralized by certain assets of RBA International, Inc. Principal and interest on the note can be prepaid without penalty and may be applied as a payment towards a majority ownership interest in RBA International, Inc., by the Company. The Company has been granted an exclusive right to purchase a majority ownership in RBA International, Inc. on or before January 5, 2008.
In January 2007, the Company, signed a work order with RBA International, Inc. in the amount of $48,000 for the analysis and design of a website that allows an individual to order tickets or gift cards, the ability to make and accept payments via debit or credit cards and integrate with our PhoneCodes(C) software and ultimately send notification along with the VeriCode(R) to the recipient's cell phone.
In January 2007, the Company signed a Value Added Reseller (VAR) agreement with DataCard Group, Minnetonka, Minnesota. The agreement provides the Company the right to sell DataCard products in conjunction with our own products. DataCard Group manufactures and distributes card printers, card printer accessories and card printer supplies.
In November 2006, the Company entered into an agreement with a design and manufacturing company to design and build a line of readers to overcome the Company's dependence on outside suppliers. We have been evaluating a proto-type cell phone reader designed by the manufacturing company. Upon acceptance of the proto-type reader, the Company plans to sign a contract with the manufacturing company to design and manufacture four individual proto-type models of readers that work with Matrix Symbologies. The agreement requires 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 expected to take approximately four months. As of this filing, $50,000 has been paid towards this agreement.
On February 6, 2007, the Company authorized a bonus to the Company's CEO in the amount of $300,000. 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.
K. RECENTLY ISSUED ACCOUNTING STANDARD
In June 2006, the FASB issued FASB Interpretation No. 48. Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, this interpretation provides guidance on the de-recognition and classification of a tax position reflected within the financial statements and the recognition of interest and penalties, in interim and annual periods. FIN 48 is effective for us on July 1, 2007. We are currently evaluating the effect of this standard on our consolidated financial statements.
Item 2. Management's 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 Company's expectations and beliefs concerning the Company's 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
Stock-Based Compensation
The Company followed the accounting guidance of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", for measurement and recognition of stock-based transactions with employees. No compensation cost was recognized for options issued when the exercise price of the options was at least equal to the fair market value of the common stock at the date of grant. Had compensation cost for the stock options issued been determined based on the fair value at the grant date, consistent with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", the effect on the Company's 2007 net loss and loss per common share would have been insignificant.
The Financial Accounting Standards Board issued SFAS No. 123(R), "Share-Based Payment", in December 2004, which requires the cost of employee compensation paid with equity instruments to be measured based on grant-date fair values and recognized over the vesting period. The new rule allowed companies to implement SFAS No. 123(R) at the beginning of their fiscal year that begins after June 15, 2005. Under the new rule, SFAS No. 123(R) became effective for the Company on July 1, 2005.
Revenue Recognition
Infringement revenue is recognized upon completion of all required terms under the agreement with VData and collection is reasonably assured. As a result, all infringement revenue has been recorded in the quarter it was received. Revenues from software sales, product sales and engineering are recognized when products are shipped or services performed. License fees are recognized upon completion of all required terms under the agreement. The process typically begins with a customer purchase order detailing its hardware specifications so the Company can customize its software to the customer's hardware. Once customization is completed, the Company typically transmits the software to the customer via the Internet. Revenue is recognized at that point. Once the software is transmitted, the customers do not have a right of refusal or return. Under some agreements the customers remit payment prior to the Company having completed customization or completion of any other required services. In these instances, the Company delays revenue recognition and reflects the prepayments as customer deposits.
Software License
The software license from RBA International, Inc. is capitalized at cost and amortized using the straight line method over a life of five years.
General
In February 2005, an adverse arbitration ruling was made against Veritec and in favor of Mitsubishi in the amount of $8,174,518 and enjoining Veritec and by extension Veritec's customers from the future use or sale of what was found to be
"Mitsubishi's Error Detection and Correction Technology." This ruling and effort by Mitsubishi to reduce the ruling to judgment compelled Veritec to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Minnesota on February 28, 2005.
In February 2006, Veritec and Mitsubishi entered into a Settlement Agreement whereby, in exchange for $300,000, a license to utilize Veritec's VeriCode(R) technology, and dismissal of the patent infringement litigation filed by VData and VCode against Mitsubishi, Mitsubishi waived its right to the $8,174,518 and licensed Veritec's use of the Mitsubishi Error Detection and Correction Technology.
In April 2006, Veritec's Third Amended Plan of Reorganization was confirmed by the Bankruptcy Court. On August 8, 2006, after resolution of all disputed creditor claims, Veritec received from the Bankruptcy Court an Order and Final Decree closing the Chapter 11 case in its entirety. As a result of the closing of the Chapter 11 bankruptcy on August 8, 2006, Veritec was relieved of $9,356,948 in debt.
For a more detailed discussion on the bankruptcy proceedings and Veritec's Third Amended Plan of Reorganization, refer to the Form 8-K's 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, which are incorporated by reference.
Nature of Business
The Company is engaged in the development, marketing, and sales of a line of microprocessor based encoding and decoding systems that utilize Matrix Symbology, a two-dimensional barcode technology along with the readers/scanners that are needed to read the code.
The Company also receives fees from the enforcement and licensing of its patents under its Exclusive License Agreement with Acacia.
The Company has developed unique software, which will allow individuals or companies to receive or distribute gift cards, tickets or coupons using the VeriCode(R) technology via wireless phone or PDA. The Company also is developing its presence in the secure identification and access control markets by teaching the means to utilize the VSCode on Identification (ID) Cards to store images, biometric data (retinal and fingerprint minutia) and alphanumeric data for contemporaneous verification of an individual's unique identity.
Infringement Revenue
For the three months ended December 31, 2006 and 2005, the Company recognized infringement revenue of $402,264 and $119,535, respectively, through its relationship with Acacia. For the six months ended December 31, 2006, the Company recognized infringement revenue of $661,928 compared to infringement revenue of $179,053 for the six months ended December 31, 2005. The Company recognizes infringement revenue upon the completion of all required terms under the agreement with VData and when collection is assured. Infringement revenue, beyond the third quarter ending March 31, 2007, when considering the potential adverse determination in regard to the Patent Reexaminations or the Declaratory Judgment of Patent Nos. 4,924,078 and 5,612,524, should not be viewed as unlimited and should be considered likely to decline or cease in the near future.
Identification Card/SEI Acquisition
In October 2006, Veritec entered into an agreement to purchase selected assets of Secure Environments, Inc. (SEI), a Minnesota corporation that produces identification cards. The assets acquired consisted of office furniture, computer equipment, specialty software, and security card and badge printers. Veritec also acquired a customer base of 73 small to large commercial and municipal customers, including security firms and police departments. Terms of the purchase were Veritec's assumption of $3,940 in debt and a 10% royalty, not to exceed $150,000 in aggregate, for any future sales by Veritec to the 73 SEI customers. For the period ended December 31, 2006, the Company valued SEI assets at $6,296 and recorded the cost as an asset and an offsetting liability. Any royalty payments made as a result of the purchase of SEI will first be applied against the liability of $2,356 until such time as the liability has been satisfied. Once the liability has been satisfied, any future royalty payments will be expensed as incurred.
Results of Operations - December 31, 2006 compared to December 31, 2005
Revenues
Revenues of $494,833 for the three months ended December 31, 2006 increased by $253,738 or 105% higher than for the same period ended December 31, 2005. For the three months ended December 31, 2006, software license sales were down by $26,708, hardware sales were lower by $10,159, secure ID card sales increased by $7,876 and infringement settlements were higher by $282,729.
The Company is continuing to see declining software license and hardware sales from our distributors 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. Accordingly, we are addressing these issues by continuing to grow the number of distributorships for our products and developing our own line of readers to make us more competitive in the market. Another reason for the decline in revenue is the volatility of revenues due to the fluctuation of sales to Veritec's 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. The decline in revenue was offset by infringement revenue from Acacia of $402,264 for the three months ended December 31, 2006, compared to $119,535 for the same period in 2005. The decline in revenue was also offset by increased sales of secure ID card sales, totaling $7,883 for the three months ended December 31, 2006 compared to $7 for the three month period ended December 31, 2005. The increase in card sales was the direct result of the acquisition of SEI, Inc.
Revenues of $853,825 for the six months ended December 31, 2006, increased by $56,073 or 7% more than for the same period ended December 31, 2005. For the six months ended December 31, 2006, software license sales were down by $425,610, hardware sales were less by $9,026, secure ID card sales increased by $7,834, and infringement settlements were higher by $482,875.
The decline in, software license sales and hardware sales and the increase in secure ID card sales for the six months ended December 31, 2006, compared to the same period in 2005 are for the same reasons as explained for the three month period above. Infringement revenue from Acacia of $661,928 for the six months ended December 31, 2006 increased by $482,875 compared to the six months ended December 31, 2005, which reflects Acacia's strong efforts to settle with infringers. For the six month period ended December 31, 2006, infringement revenue received from Acacia was 78% of the total revenue compared to 22% for the same period in 2005.
Cost of Sales
Cost of sales of $10,428 for the three months ended December 31, 2006, decreased by $5,858 or 36% from the same period in 2005, and decreased 4.7% as a percent of sales for the quarter. For the three months ended December 31, 2006, the cost of hardware sales decreased $6,549 but increased as a percentage of sales by 0.8% compared to the same period for the previous year, whereas the cost of software licenses for the quarter ended December 31, 2006 decreased $1,242 compared to the same period in 2005. Software license cost for the three month period ended December 31, 2006, compared to the same three month period of 2005 decreased as a percentage of sales by 0.8%. The increased hardware cost of 0.8%, as a percentage of sales, was the result of the Company accepting higher costs of 53% and lower margins of 47% on the equipment portion of a sale to a local customer, which was done as an enticement to obtain the business.
Cost of sales for the six months ended December 31, 2006, totaled $15,538 and for the six months ended December 31, 2005, cost of sales were $33,643 a decrease of $18,105. As a percentage of sales, for the six month period ended December 31, 2006, cost of sales was 1.8% compared to 4.2% for the six months ended December 31, 2005. The infringement revenue received from Acacia which carries no cost caused cost of sales as a percentage of revenue for the six months ended December 31, 2006 compared to the same period in 2005 to decrease.
Selling General and Administrative
Selling, general and administrative expenses of $392,577 for the three months ended December 31, 2006, increased by $112,971 or 40% from the same period in 2005. The increase was in part the result of marketing expense totaling $63,793. Since emerging from bankruptcy the Company has added a V.P. of Sales and Marketing, a salesperson to market and grow the secure ID card business, acquired SEI, Inc., and contracted with several consulting firms in order to market the Company's products. For the three months ended December 31, 2005, the Company had no sales and marketing employees and used minimal consultants. For the three months ended December 31, 2006, payroll costs for sales and marketing totaled $46,458
and consultant costs were $16,350. Professional fees for legal and audit services increased by $65,459 for the three month period ended December 31, 2006, compared to the same period in 2005. For the second quarter of Fiscal 2007, the Company recognized increased professional fees as a result of the Company's effort to become current with its SEC reporting.
For the six months ended December 31, 2006, selling, general and administrative expenses were $724,057 and $581,584 for the six months ended December 31, 2005 an increase of $142,473. For the six months ended December 31, 2006, travel costs increased $11,009, selling and marketing expense increased $69,238, professional services increased $62,611 and all other expenses decreased $385 compared to the same six month period in 2005.
Research and Development
Research and development expense of $107,491 for the three months ended December 31, 2006 increased by $73,519 from 2005. Research and development expense was $194,895 for the six month period ended December 31, 2006 and $58,199 for the six months ended December 31, 2005. The increase for both the three and six month periods was the result of the resumption of research and development efforts since emerging from bankruptcy. We have concentrated our engineering efforts to finalize the development and production of the FCR-100 Finger Print reader and in improving the accuracy and readability of the VSCode. During the three months ended December 31, 2006, we entered into an agreement with a design and manufacturing company to design and manufacture a line of readers to overcome the Company's dependence on outside suppliers. We have been evaluating a proto-type cell phone reader designed by the manufacturing company. The Company has also entered into an agreement with a software integration and banking firm to develop the back end software necessary to link a customer's database and the Company's PhoneCodes(C) Technology. We are also working with this banking firm to incorporate the VSCode and their banking technology to develop the VSCard(C). The VSCard(C) will be the combination of both a Visa debit card and an Identity-Card to create a multi functional ID-card with unique banking and security capabilities.
Capital Expenditures and Future Commitments
Capital expenditures for the six months ended December 31, 2006, were $30,179, of which $18,500 was for the development of the PhoneCodes(C) product software and $6,296 was for the assets of the SEI acquisition. For the six months ended December 31, 2005, there were no capital expenditures. Although we continue to try and minimize spending for capital expenditures, we believe our need for additional capital equipment will continue because of the need to develop and expand our business. The amount of such additional capital is uncertain and may be beyond that generated from operations.
Other Assets-Software License
In December, the Company spent $100,000 for the purchase of an Independent Sales Organization (ISO) license. The license allows the Company the capabilities of operating as a marketing arm of participating banks and providing the Company's customers a secure banking and debit card system. The Company believes this license is one of the crucial components necessary to take the PhoneCodes(C) product to market. The license also provides the Company the necessary technology to produce and market the VSCard(C). The VSCard(C) will be the combination of both a Visa debit card and an Identity-Card to create a multi functional ID-card with unique banking and security capabilities. The license will be amortized over a five year period beginning the third quarter of fiscal 2007.
The Company capitalizes software license cost and amortizes the cost over a five year period unless it can be determined by management that the life of the license is either more or less than five years.
Liquidity and Capital Resources
The Company has relied on The Matthews Group for funding. Through December 31, 2006, The Matthews Group has funded $1,685,185, including prepayments, of the original of $2,000,000 stock subscription receivable.
For the three months ended December 31, 2006 and 2005, the Company has recognized infringement revenue of $402,264 and $119,535, respectively, through its relationship with Acacia. It is expected that infringement revenue will decline or cease after the quarter ending March 31, 2007, as the Company's patents are subject to reexamination by the United States Patent and Trademark Office.
As of February 13, 2007, the Company, after having received the third quarter payment of infringement revenue of $1,105,966, had consolidated cash balances of $1,252,128, which, we believe is sufficient to meet our short-term needs. However, the Company may need additional capital to continue to develop and expand.
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
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 December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of our internal 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
The quarterly review process in fiscal 2006 and the audits of our June 30, 2006 and 2005 consolidated financial statements revealed a need for stronger controls over our financial reporting system. Improvements needed related to a general lack of accounting staff. During the bankruptcy period, the Company utilized a consultant for its accounting and financial reporting system. As a result, certain controls were limited. When the Company emerged from bankruptcy, we responded to these concerns by hiring a full time Chief Financial Officer.
Our Chief Executive Officer and Chief Financial Officer, do not expect that disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
During its 1995 - 1997 bankruptcy, the Company sought an investment group to fund the $2,000,000 required under the Plan of Reorganization approved by the Bankruptcy Court. In the intervening years, various investment groups attempted to help the Company fund this required investment. Partial funding received from these investment groups were settled through stock issuances by the Company. One of these former investment groups made claims totaling $166,697 against the Company, $90,980 in cash and $75,717 in stock (94,646 shares at $.80 per share), but has not pursued legal action relating to these claims. It is possible that other investment groups will assert claims against the Company regarding their efforts to secure funding on behalf of the Company. Management believes these claims were settled in the bankruptcy or are time barred. Due to uncertainties, however, it is at least possible that claims will be asserted. The ultimate outcome of these claims, if asserted, cannot presently be determined.
On June 30, 2000, we were served as a defendant in the matter of Starosolsky vs. Veritec, Inc., et al., in the United States District Court for the Central District of California. 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 Company's 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 1990's. The complaint seeks 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 previous 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. In December 2000, this case was transferred to the United States District Court for the District of Minnesota. The case has lingered without prosecution. Consequently, management is not able to express an opinion on the likely outcome.
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 Company's 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 defendants. No opinion can be rendered at this time with respect to the outcome of this action as to 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 VCode's United States Patent No. 5,612,524 is not enforceable against Cognex Corporation and its customers. On December 27, 2006, an answer and affirmative defense was filed to contest the plaintiff's allegations and claims for damages, injunctive relief, attorney's fees, and costs. A counterclaim was also filed for infringement of United States Patent Nos. 5,612,524. This case has not yet been set for trial. At this point in time, it is too early to evaluate the likelihood of an unfavorable outcome or an estimate of the amount of range of potential loss.
On April 6, 2006, the U.S. Patent and Trademark Office granted a Third Party Request for an Ex Parte Reexamination of VCode's 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. The Company is confident in its patent but is unable to express an opinion at this time with respect to the outcome of the reexamination. However, not all claims of the patent have been challenged and the Company believes that a determination adverse to the patent would not be detrimental to the Company's 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 Company's 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. Defendant PNY Technologies, Inc. has counterclaimed with allegations of non-infringement, invalidity, and inequitable conduct and is seeking attorney's fees and costs. Defendant Aetna, Inc. filed a Motion to Dismiss and a Motion for Rule 11 Sanctions. The Court denied both of Aetna's motions. Defendant Merchant's Credit Guide Co. filed a Motion to Stay; Alternative Motion for Sanctions. The Court recently granted Merchants' Motion to Stay and the case is currently stayed pending re-exam of the patents. This case has not yet been set for trial. At this point in time, it is too early to evaluate the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss.
On October 26, 2006, a Third Party Request for an Ex Parte Reexamination of VCode's 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. A response on behalf of the Company rebutting the allegations in the Request for Reexamination will be filed with the U.S. Patent and Trademark Office. Once the response has been filed, the Company will await a determination by the U.S. Patent and Trademark Office on whether they will 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. The Company is confident in its patent but is unable to express an opinion at this time with respect to the outcome of the reexamination. However, the Company believes that a determination adverse to the patent would not be detrimental to the Company's ability to market its products, but could be detrimental to the collection of licensing fees based upon this patent.
SEC Reporting Obligations
We are subject to the continuing reporting obligations of the Securities Exchange Act of 1934 (the 1934 Act), which, among other things, requires the filing of quarterly and annual reports and proxy materials with the Securities and Exchange Commission (the SEC). Prior to September 1999 and periodically thereafter, including the entire period during our most recent bankruptcy, we did not comply with SEC filing requirements. We have recently filed delinquent reports. To our knowledge, there is no current inquiry or investigation pending or threatened by the SEC in connection with our prior reporting violations. However, there can be no assurance that we will not be subject to such inquiry or investigation in the future. As a result of any potential or pending inquiry by the SEC or other regulatory agency, we may be subject to penalties, including among other things, suspension of trading in our securities, court actions, administrative proceedings, preclusion from using certain registration forms under the Securities Act of 1933, as amended, injunctive relief to prevent future violations and/or criminal prosecution.
Item 1A. Risk Factors
Risk Factors
Investing in the 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. In an attempt 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.
Loss of the Services of Key Employees Could Harm Our Operations.
The Company's 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 Acacia and Intellectual Property.
The Company is dependent on Acacia 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, our future ability to obtain licensing fees for United States Patent Nos. 4,924,078 and 5,612,524 could cease. Therefore, this infringement revenue should not be viewed as unlimited and should be considered likely to decline or cease in the near future.
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 of the Mitsubishi Error Detection and Correction Technology gave Mitsubishi a license to our VeriCode(R) Technology that has resulted in increased competition. 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 impact future sales.
Dependence on The Matthews Group.
The Company has historically been dependent on The Matthews Group for its financial support. Management does not believe additional monies above the stock subscription obligation will be required in the immediate future. However additional capital may be required at some future point. The Company cannot guarantee that The Matthews Group will continue to provide additional funding.
Ability to Obtain Access to Capital.
Due to the Company's prior bankruptcies and history of losses, the Company's ability to raise funds, whether from lending, selling stock, or other sources, may be difficult to achieve. 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.
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, the lack of trade credit could substantially impair the Company's ability to grow and implement its plans.
Competition.
Our VeriCode(R) 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); Symbol Technologies (NYSE: SBL); and, Zebra Technologies Corporation
(NASDAQ: ZBRA). Competition from such companies may further reduce the
future level of demand for the Company's products and/or the Company's
future margins of profit.
Effect of Bonus.
On February 6, 2007, the Company authorized a bonus to the Company's CEO in the amount of $300,000. 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. Although we believe the bonus payment would only be distributed when the Company has sufficient cash reserves, timing of the bonus payment could have a material impact on the Company's liquidity.
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, have an effect upon the Company some of which could be 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
We will be having our Annual Meeting of Shareholders on March 2, 2007 at 11:00 a.m. local time at the offices of Lurie Besikof Lapidus & Company, LLP, 2501 Wayzata Boulevard, Minneapolis, Minnesota 55405. Our Board of Directors has fixed the close of business on January 12, 2007 as the record date for the determination of shareholders entitled to receive notice of and to vote at the meeting and any adjournment thereof.
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 December 31, 2006 to be signed on its behalf by the undersigned thereunto duly authorized on the February 14, 2007.
Veritec, Inc.
/s/ Van Thuy Tran ---------------------------------------- Van Thuy Tran, Chief Executive Officer /s/ Gerald Fors ---------------------------------------- Gerald Fors, Chief Financial Officer |
EXHIBIT INDEX
3(ii) Current Bylaws of Veritec, Inc. as amended.
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. Section 1350).
*99.1 Press Release issued by the Registrant on February 16, 2005, announcing
the adverse ruling against Veritec, Inc., by the International Court of
Arbitration, awarding a monetary judgment in favor of Mitsubishi
Corporation of approximately $8.1 Million; and, enjoining Veritec from
further violations of Mitsubishi's EDAC copyright (filed as Item 9.01
Exhibit 99.1 to Veritec's Form 8-K filed on February 17, 2005 and
incorporated herein by reference)
*99.2 Notice of the Registrant having filed on February 28, 2005, a Petition
for Relief under Chapter 11 of the United States Bankruptcy Code with
the United States Bankruptcy Court, District of Minnesota (Case Number
05-31119) (filed as Item 1.03 Bankruptcy or Receivership to Veritec's
Form 8-K filed February 28, 2005 and incorporated herein by reference)
*99.3 Notice of the Registrant's case in Bankruptcy being converted to Chapter
7 of the United States Bankruptcy Code (Case Number 05-31119) (filed as
Item 1.03 Bankruptcy or Receivership to Veritec's Form 8-K filed
December 19, 2005 and incorporated herein by reference)
*99.4 Notice of the Registrant's case in Bankruptcy being reconverted to
Chapter 11 of the United States Bankruptcy Code (Case Number 05-31119)
(filed as Item 1.03 Bankruptcy or Receivership to Veritec's Form 8-K
filed March 10, 2006 and incorporated herein by reference)
*99.5 Notice of the Registrant's Third Amended Plan of Reorganization being
confirmed by the United States Bankruptcy Court (Case Number 05-31119)
(filed as Item 1.03 Bankruptcy or Receivership and Item 9.01 Financial
Statements with attached Exhibit 2.1 Order and Notice Confirming Plan
and Fixing Time Limits, dated April 26, 2006; Exhibit 2.2 Debtor's Third
Modified Plan of Reorganization with Settlement Agreement; and, Exhibit
99.1 Unaudited balance sheet of registrant at April 26, 2006, to
Veritec's Form 8-K filed May 01, 2006 and incorporated herein by
reference)
*99.6 Notice of the Registrant's receipt of "Order and Final Decree Closing
Chapter 11 Case" from the United States Bankruptcy Court (Case Number
05-31119) (filed as Item 1.03 Bankruptcy or Receivership and Item 8.01
Other Events identifying the Press Release issued announcing the same,
to Veritec's Form 8-K filed August 11, 2006 and incorporated herein by
reference).
With respect to the documents incorporated by reference to this Form
10-QSB, Veritec's Commission File Number is 0-15113.
|
* As Previously Filed
Exhibit 3(ii)
BY-LAWS OF
VERITEC INC
(a Nevada Corporation)
ARTICLE I
Meetings of Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of Veritec, Inc. (hereinafter referred to as the "Corporation") shall be held at such time as determined by the board of directors of the Corporation. At the annual meeting the stockholders shall elect by a plurality vote a board of directors (hereinafter referred to as the "Board") and transact such other business as may properly be brought before the meeting.
SECTION 2. Special Stockholders' Meetings. Special meetings of the stockholders, unless otherwise prescribed by statute may be called for any purpose or purposes at any time by a majority of the Board or by a written request from the Stockholders representing the majority of the outstanding voting stock issued and outstanding and entitled to vote.
SECTION 3. Notice of Meeting. Notice of the place, date and hour of holding each annual and special meeting of the stockholders and the purpose or purposes thereof shall be given personally or by mail, not less than ten or more than sixty days before the date of such meeting, to each stockholder entitled to vote at such meeting, and, if mailed, it shall be directed to such stockholder at his or her address as it appears on the record of stockholders, unless he shall have filed with the Secretary of the Corporation a written request that notices to him or her be mailed to some other address. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting, object to the transaction of any business because the meeting is not lawfully called or convened, or who shall take part in the deliberations of such meetings without objection, or who shall either before or after the meeting, submit a signed waiver of notice, in person or by proxy. Unless the Board shall fix a new record date for an adjourned meeting, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment is taken.
SECTION 4. Place of Meetings. Meetings of the stock holders may be held at such place, within or without the State of Minnesota, as the Board or the officer calling the same specify in the notice of such meeting, or in a duly executed waiver of notice thereof.
SECTION 5. Quorum. At all meetings of the stockholders the holders of the majority of the shares of Common Stock of the Corporation, issued and outstanding and entitled to vote, shall be present in person or by proxy to constitute a
quorum for the transaction of business, except when stockholders are required to vote by class, in which event a majority of the issued and outstanding shares of the appropriate class shall be present in person or by proxy, or except as otherwise provided by statute. In the absence of a quorum, the holders of a majority of the shares of stock present in person or by proxy and entitled to vote or if no stockholder entitled to vote is present, then any officer of the Corporation, may adjourn the meeting from time to time. At any such adjourned meeting at which a quorum may be present any business may be transacted which might have been transacted at the meeting as originally called.
SECTION 6. Organization. At each meeting of the stockholders, the Chairman of the Board, or in his or her absence or inability to act, the President or in the absence or inability to act of the Chairman of the Board and the President, any Vice President of the Corporation, shall act as chairman of the meeting or, if not one of the foregoing officers is present, a chairman shall be chosen at the meeting by the stock holders. The Secretary, or in his or her absence or inability to act, the Assistant Secretary, or in his or her absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof.
SECTION 7. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting.
SECTION 8. Voting. Except as otherwise provided by statute or the Articles of Incorporation, each holder of record of shares of stock of the Corporation having voting power shall be entitled at each meeting of the stockholders to one vote for every share of such stock standing in his or her name on the record of stockholders of the Corporation (a) on the date fixed by the Board as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or (b) if such record date shall not have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given; or (c) if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him or her by a proxy signed by such stockholder or his or her attorney in-fact. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated in the order of business for so delivering such proxies. No proxy shall be valid after the expiration of six months from the date thereof, unless otherwise provided in the proxy in the manner provided for by statute. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where an irrevocable proxy is permitted by law. Except as otherwise provided by statute, these By-Laws, or the Articles of Incorporation, any corporate action to be taken by vote of the stockholders shall be authorized by a majority of the total votes, or when stockholders are required to vote by class, by a majority of the votes of the appropriate class, cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any
question need not be by written ballot. On a vote by written ballot, each ballot shall be signed by the stockholder voting, or by his or her proxy, if there be such proxy, and shall state the number of shares voted.
SECTION 9. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of share registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
SECTION 10. Inspectors. The Board may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting shall appoint inspectors. Each inspector, before entering upon the discharge of his or her duties, shall take an sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders.
SECTION 11. Consent of Stockholders in Lieu of Meeting. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, the meeting and vote of stockholders can be dispenses with , except with respect to election of directors, (a) if all of the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or (b) unless statute of the Articles of Incorporation provide otherwise with the written consent of the holders of not less than the minimum percentage of the total vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders who have not so consented in writing to the taking of such corporate action without a meeting and by less than unanimous written consent.
ARITCLE II
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation shall be managed under the direction of the Board. The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Articles of Incorporation directed or required to exercised or done by the stockholders.
SECTION 2. Number, Qualifications, Election and Term of Office. The number of directors of the Corporation shall be determined by majority vote of the entire Board or by amendment of these By-Laws but shall not be less than three expect that in cases where all shares of stock of the Corporation are owned beneficially and of record by either one or two stockholders, the number of directors may be less than three but not less than the number of stockholders. All the directors shall be at least 18 years of age. Directors need not be stockholders. Except as otherwise provided by statute or the Articles of Incorporation or these By-Laws, the directors shall be elected at the annual meeting of the stockholders. Each director shall hold office until the next annual meeting of the stockholders and until his or her successor shall have been duly elected and qualified, or until his or her death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws, or as otherwise provided by statute or the Certificate of Incorporation.
SECTION 3. Place of Meeting. Meetings of the Board shall be head at the principal office of the Corporation in the State of Minnesota or at such other place, within or without such state, as the Board may from time to time determine or as shall be specified in the notice of any such meeting.
SECTION 4. Annual Meeting. The Board shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of the stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. Such meeting may be held at any other time or place (within or without the State of Minnesota), which shall be specified in a notice thereof given as hereinafter, provided in Section 7 of this or her Article II.
SECTION 5. Regular Board Meetings. Regular meetings of the Board shall be held at such time as the Board may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board need not be given except as otherwise required by statute or these By-Laws.
SECTION 6. Special Board Meetings. Special meetings of the Board may be called by any director of the Corporation or by the Chairman of the Board or the President.
SECTION 7. Notice of Board Meetings. Notice of each regular and special meeting of the Board shall be given by the Secretary as hereinafter provided in this or her Section 7, in which notice shall be stated the time and place (within or
without the State of Minnesota) of the meeting. Notice of each such meeting shall be delivered to each director, either personally or by telephone, facsimile or electronic mail, at least twenty-four hours before the time at which such meeting is to be held or by first-class mail, postage prepaid, addressed to him or her at his or her residence, or usual place of business, at least three days before the day on which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to him or her. Except as otherwise specifically required by these By-Laws, a notice or waiver of notice of any regular or special meeting need not state the purposes of such meeting.
SECTION 8. Quorum and Manner of Acting. Except as hereinafter provided, a majority of the entire Board shall be present in person or by means of a conference telephone or similar communications equipment which allows all persons participating in the meeting to hear each other at the same time at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting; and, except as otherwise required by statute or the Articles of Incorporation, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat, or if no director be present, the Secretary may adjourn such meeting to another time and place or such meeting, unless it be the annual meeting of the Board, need not be held. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Except as provided in Article III of these By-Laws the directors shall act only as a Board and the individual directors shall have no power as such.
SECTION 9. Action Without a Meeting. Any action required or permitted to be taken by the Board at a meeting may be taken without a meeting if all members of the Board consent in writing to the adoption of the resolutions authorizing such action. The resolutions and written consents thereto shall be filed with the minutes of the Board.
SECTION 10. Organization. At each meeting of the Board, the Chairman of the Board or, in his or her absence or inability to act, the President, or, in his or her absence or inability to act, another director chosen by a majority of the directors present, shall act as chairman of the meeting and preside thereat. The Secretary (or, in his or her absence, any person who shall be appointed by the Chairman) shall act as secretary of the meeting and keep the minutes thereof.
SECTION 11. Resignations. Any director of the Corporation may resign at any time by giving written notice of his or her resignation to the Board or the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 12. Vacancies. Vacancies and newly crated directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in officer although less than a quorum, or by a sole
remaining director, and the directors so appointed shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in officer then an election of directors may be hold in the manner provided by statute. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective and each director so chosen shall hold office until the next election of directors and until their successors shall be elected an qualified.
SECTION 13. Removal of Directors. Except as otherwise provided in the Articles of Incorporation or in these By-Laws, any director may be removed before the end of his or her term of office, either with or without cause, at any time, by the affirmative vote of the holders or record of not less than two thirds of the issued and outstanding stock entitled to vote for the election of directors of the Corporation given either by written consent or a special meeting of shareholders called and held for the purpose; and the vacancy in the Board caused by such removal may be filled by such stockholders at such meeting, or, if the stockholders shall fail to fill such vacancy, as in these By-Laws provided.
SECTION 14. Compensation. The Board shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity, provided such payment shall not preclude any director from serving the Corporation in any other capacity and receiving compensation therefrom.
ARTICLE III
Executives and other Committees
SECTION 1. Executive and other Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution shall have and may exercise the powers of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which the Corporation desire to place a seal on; or which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Each committee shall keep written minutes of its proceeding and shall report such minutes to the Board when required. All such proceedings shall be subject to revision or alteration by the Board; provided, however, that third parties shall not be prejudiced by such revision or alteration.
SECTION 2. General. A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Article II, Section 7. The Board shall have any power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided, however, that no such committee shall have or may exercise any authority of the Board.
SECTION 3. Action Without a Meeting. Any action required or permitted to be taken by any committee at a meeting may be taken without a meeting of all of the members of the committee consent in writing to the adoption of the resolutions authorizing such action. The resolutions and written consents thereto shall be filed with the minutes of the committee.
SECTION 4. Telephone Participation. One or more members of a committee may participate in a meeting, by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting.
ARICLE IV
Officers
SECTION 1. Numbers and Qualifications. The officers of the Corporation shall include the Chairman of the Board, the President, one or more Vice-Presidents (one of whom may be designated an Executive Vice-President).the Treasurer, and the Secretary. Any two or more offices may be held by the same person. Such officers shall be elected from time to time by the Board each to hold office until the meeting of the Board following the next annual meeting of the stockholders, or until his or her successor shall have been duly elected an shall have qualified or until his or her death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. The Board may from time to time elect, or delegate to the President the power to appoint, such other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries) and such agents as may be necessary or desirable for the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board or by the appointing authority.
SECTION 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Board, the Chairman of the Board, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer or agent of the Corporation may be removed, either with or without cause, at any time, by the vote of a majority of the entire Board at any meeting of the Board or, except in the case of an officer or agent elected or appointed by the Board, by the Chairman of the Board or the President.
SECTION 4. Vacancies. A vacancy in any office, whether arising from death, resignation, removal or any other cause, may be filled for the unexpired protion of the term of the office which shall be vacant, in the manner prescribed in these By-Laws for the regular election or appointment to such office.
SECTION 5. The Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation and shall have general and active responsibility for and authority over the general and active management of the business of the Corporation and general and active supervision and direction over the other officers, agents and employees sand shall see that their duties are properly performed. He shall, if present, preside at each meeting of the stockholders and of the Board and shall be an ex-offcio member of all committees of the Board. He shall perform all duties incident to the office of the Chairman of the Board and chief executive officer an such other duties as may from time to time be required of him or her by the board.
SECTION 6. The President. The President shall be the chief operating officer of the Corporation and shall have general and active responsibility for and authority over the supervision and direction of the business and affairs of the Corporation and over its several officers, subject, however, to the direction of the Chairman of the board and the control of the Board. At the request of the Chairman of the Board, or in the case of his or her absence or inability to act, the President shall perform the duties of the Chairman of the Board and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chairman of the Board. He shall perform all duties incident to the office of President and such other duties as from time to time may be assigned to him or her by Board, the Chairman of the Board or these By-Laws.
SECTION 7. Vice-Presidents. Each Vice-President shall perform all such duties as from time to time may be assigned to him or her by the Board, the Chairman of the Board, President.
SECTION 8. The Treasurer. The Treasurer shall
(a) Have charge and custody of, and be responsible for, all the funds and securities of the Corporation;
(b) Keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation;
(c) Deposit all monies and other valuables to the credit of the Corporation in such depositories, as may be designated by the Board;
(d) Receive, and give receipts for, monies due and payable to the Corporation from any source whatsoever;
(e) Disburse the funds of the Corporation an supervise the investment of its funds as ordered or authorized by the Board, the Chairman of the Board or the President, taking proper vouchers therefore;
(f) Render to the Chairman of the Board, whenever the Board may require, an account of the financial condition of the Corporation; and
(g) In general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Board, the Chairman of the Board, or the President.
SECTION 9. The Secretary. The Secretary shall
(a) Keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board, the committees of the Board and the stockholders;
(b) See that all notices are duly given in accordance with the provisions of these By-Laws and as required by law;
(c) Be custodian of the records;
(d) See that the books reports statements, certificates, and other documents and records required by law to be kept and filed are properly kept and filed; and
(e) In general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the Board, the Chairman of the Board or the President.
SECTION 10. Compensation. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board; provided, however, that the Board may delegate to the President the power to fix the compensation of officers and agents appointed by the Chairman of the Board or the President, as the case may be. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation, but any such officer who shall also be a director (except in the event that there is only one director of the Corporation) shall not have any vote in the determination of the amount of compensation paid to him or her.
ARITICLE V
Indemnification
SECTION 1. Agreement to Indemnify. The Corporation shall indemnify any person (including his or her heirs, executors and administrators) who was or is a party or is threatened to be made party to any threatened, pending or complete action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.
SECTION 2. Agreement in Derivative Action. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership joint venturer trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him other in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Corporation unless and only to the extent that the District Court or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the District Court or such other court shall deem proper.
SECTION 3. Determination. Any indemnification under Sections 1 or 2 of this or her Article V (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 or 2 of this or her Article V. Such determination shall be made (a) by the stockholders, or (b) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (c) if such a quorum of disinterested directors so orders, by independent legal counsel in a written opinion, or (d) if such a quorum of disinterested directors cannot be obtained, by independent legal counsel in a written opinion.
SECTION 4. Advances. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this or her Article V.
SECTION 5. Non-Exclusivity. The indemnification provided byt his or her Article V does not exclude any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
SECTION 6. Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this or her Article V.
SECTION 7. Reference. For purposes of this or her Article V references to the "Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this or her Article V with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity.
ARTICLE VI
Contracts, Checks, Drafts, Bank Accounts, Etc.
SECTION 1. Execution of Contracts. Except as otherwise required by statute, the Articles of Incorporation or these By-Laws, any contract or other instrument may be executed and delivered in the name and on behalf of the Corporation by such officer of officers (including any assistant officer) of the Corporation as the Board may from time to time direct. Such authority may be general or confined to specific instances as the Board may determine. Unless authorized by the Board or expressly permitted by these By-Laws, no officer or agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it pecuniarily liable for any purpose or to any amount.
SECTION 2. Loans. Unless the Board shall otherwise determine, either (a) the Chairman of the Board or the President, singly or (b) any Vice-President, the Treasurer or the Secretary, together with either the Chairman of the Board or the President, may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, but no officer or officers shall mortgage, pledge, hypothecate or transfer any securities or other property of the Corporation except when authorized by the Board.
SECTION 3. Checks, Drafts, etc. All checks, drafts, bills of exchange or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidence of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation by such persons and in such manner as shall from time to time be authorized by the Board.
SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may from time to time designate or as may be designated by any officer or officers of the Corporation to whom such power of destination may from time to time be delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer or agent of the Corporation.
SECTION 5. General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not in consistent with the provisions of these By-Laws as it may deem expedient.
SECTION 6. Proxies in Respect of Securities of Other Corporations. Unless otherwise provided by resolution adopted by the Board of Directors, the Chairman of the Board, the President, or a Vice-President may from time to time appoint an attorney or attorneys or agent or agents, of the Corporation, in the name and on behalf of the Corporation to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation, and may instruct he person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VII
Shares, Etc.
SECTION 1. Stock Certificates. Each owner of stock of the Corporation shall be entitled to have a certificate, in such form as shall be approved by the Board, certifying the number of shares of stock of the Corporation owned by him or her. The certificates representing shares of stock shall be signed in the name of the Corporation by the President or the Vice President and by the Secretary, Treasurer or an Assistant Secretary. In case any officer who shall have signed such certificates
shall have ceased to be such officer before such certificates shall be issued, they may nevertheless be issued by the Corporation with the same effect as if such officer were still in office at the date of their issue.
SECTION 2. Books of Account and Record of Stockholders. The Corporation
shall maintain in the State of Minnesota the books and records required by
Section 78.105 of the General Corporation Law of the State of Minnesota. The
books and records of the Corporation may be kept at such places within or
without the State of Minnesota, as the Board of Directors may from time to time
determine. The stock record books and the blank stock certificate books shall be
kept by the Secretary or by any other officer or agent designated by the Board
of Directors.
SECTION 3. Transfer of Shares. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation only upon authorization by the registered holder thereof, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Except as otherwise provided by law, the person in whose name shares of stock shall stand on the record of stockholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfers of shares shall be made for collateral security and not absolutely and written notice thereof shall be given to the Secretary or to such transfer agent or transfer clerk, such fact shall be stated in the entry of the transfer.
SECTION 4. Regulations. The Board may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issues, transfer and registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates for shares of stock to bear the signature or signatures of any of them.
SECTION 5. Fixing of Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholder or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed, (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; or (b) the record date for determining stockholder entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written
consent is expressed; or (c) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however that the Board may fix a new record date for the adjourned meeting.
SECTION 6. Lost, Destroyed or Mutilated Certificate. The holder of any certificate representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated, and the Board may, in its discretion, require such owner or his or her legal representative to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate, or the issuance of such new certificate. Anything herein to the contrary notwithstanding, the Board, in its absolute discretion, may refuse to issue any such new certificate, except pursuant to legal proceedings under the laws of the State of Minnesota.
SECTION 7. Inspection of Books and Records. Any person who has been a stockholder of record of the Corporation for at least six (6) months immediately preceding his or her demand, or any person holding, or thereunto authorized in writing by the holders of, at least five (5) percent of all outstanding shares, upon at least five (5) days written demand, or any judgment creditor of the corporation without prior demand, shall have the right to inspect in person or by agent or attorney, during usual business hours, the stock ledger or duplicate stock ledger, whether kept in the principal office of the Corporation in Minnesota or elsewhere and to make extracts therefrom.
An inspection authorized by his or her subsection may be denied to such stockholder or other person upon his or her refusal to furnish to the Corporation an affidavit that such inspection is not desired for a purpose which is in the interest of a business or object other than the business of the Corporation and that he has not at any time sold or offered for sale any list of stockholders of any domestic or foreign corporation or aided or abetted any person in procuring any such record of stockholders for any such purpose.
ARTICLE VIII
Offices
SECTION 1. Other Offices. The registered office of the Corporation shall be 2445 Winnetka Avenue North, Golden Valley, Minnesota 55427, and the registered agent of the Corporation shall be Van Thuy Tran, 2445 Winnetka Avenue North, Golden Valley, Minnesota 55427.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be determined by the Board of Directors of the Corporation.
ARTICLE X
Seal
The Corporation shall not have a seal.
ARITCLE XI
Amendment
These By-Laws may be amended, repealed or altered by vote of the holders of a majority of the shares of stock at the time entitled to vote in the election of directors, except as otherwise provided in the Articles of Incorporation. These By-Laws may also be amended, repealed or altered by the Board of Directors, but any By-Laws adopted by the Board of Directors may be amended, repealed or altered by the stockholders entitled to vote thereon as herein provided.
Exhibit 31
Section 302 CEO/CFO Certification
I, Van Tran, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Veritec, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
IN WITNESS WHEREOF, the undersigned have executed this Certification as of the 14th day of February, 2007.
/s/ Van Thuy Tran ---------------------------------------- Van Thuy Tran, Chief Executive Officer |
Exhibit 31
Section 302 CEO/CFO Certification
I, Gerald Fors, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Veritec, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
IN WITNESS WHEREOF, the undersigned have executed this Certification as of the 14th day of February, 2007.
/s/ Gerald Fors ---------------------------------------- Gerald Fors, Chief Financial Officer |
Exhibit 32
VERITEC, INC.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
The undersigned, Van Tran, the Chief Executive Officer and Gerald Fors, the Chief Financial Officer of Veritec, Inc. (the "Company"), individually, has executed this Certification in connection with the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended December 31, 2006 (the "Report").
The undersigned hereby certifies that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of December 31, 2006 (the last day of the period covered by this Report).
IN WITNESS WHEREOF, the undersigned have executed this Certification as of the 14th day of February, 2007.
/s/ Van Thuy Tran ---------------------------------------- Van Thuy Tran, Chief Executive Officer /s/ Gerald Fors ---------------------------------------- Gerald Fors, Chief Financial Officer |