Results of Operations - Three months ended December 31, 2021, compared to
December 31, 2020
We had a net loss of $123,000 in the three months ended December 31, 2021,
compared to a net loss of $213,000 for the three months ended December 31, 2020.
Revenues
Details of revenues are as follows:
Three months ended
December 31, Increase (Decrease)
2021 2020 $ %
Mobile banking technology $ 23,000 $ 22,000 $ 1,000 4.5
Other revenue, management fee -
related party 58,000 111,000 (53,000 ) (47.7 )
Total Revenues $ 81,000 $ 133,000 $ (52,000 ) (39.1 )
• Mobile banking technology
Mobile Banking Technology revenues include products such as the Company's Blinx
On-Off™ prepaid toggle Card and its Open Loop/Closed Loop System and Bio ID Card
Platform. Mobile Banking Technology uses web-based mobile technology to offer
financial cardholders the very best technology in conducting secure financial
transactions in real-time, protecting personal identity, and financial account
security. Mobile Banking Technology revenues for the three months ended December
31, 2021, and 2020 were $23,000 and $22,000, respectively.
• Other revenue, management fee - related party
Effective October 1, 2015, the Company entered into a management services
agreement with The Matthews Group for which the Company agreed to manage its
previous barcode technology business, on behalf of The Matthews Group, from
October 1, 2015 to June 30, 2022. Per the terms of the management services
agreement, the Company earned a fee of 20% of barcode technology operations
revenues through May 31, 2017. Subsequent to May 31, 2017 and up to June 30,
2022, The Matthews Group earns a fee of 35% from the barcode technology
operations. For the three months ended December 31, 2021 and 2020, revenue
earned from the management services agreement was $58,000 and $111,000,
respectively.
Cost of Sales
Cost of sales for the three months ended December 31, 2021 and 2020 totaled
$48,000 and $55,000, respectively.
Operating Expenses
Selling, general and administrative expenses for the three months ended December
31, 2021 and 2020 totaled $165,000 and $192,000, respectively. The decrease in
selling, general and administrative expenses was primarily due to decreased
professional fees as compared to the same period of the prior year.
Other Income (Expenses)
On October 22, 2021, the Company was notified that its PPP loan forgiveness
applications totaling $118,000 were approved. No similar activity occurred in
the prior year period.
Interest expense for the three months ended December 31, 2021 and 2020, was
$109,000 and $99,000, respectively. The increase was due to the increase in our
notes payable balance.
18
Results of Operations - Six months ended December 31, 2021, compared to December
31, 2020
We had a net loss of $355,000 for the six months ended December 31, 2021,
compared to a net loss of $538,000 for the six months ended December 31, 2020.
Revenues
Details of revenues are as follows:
Six months ended
December 31, Increase (Decrease)
2021 2020 $ %
Mobile banking technology $ 47,000 $ 46,000 $ 1,000 2.2
Other revenue, management fee -
related party 150,000 167,000 (17,000 ) (10.2 )
Total Revenues $ 197,000 $ 213,000 $ (16,000 ) (7.5 )
• Mobile banking technology
Mobile Banking Technology revenues include products such as the Company's Blinx
On-Off™ prepaid toggle Card and its Open Loop/Closed Loop System and Bio ID Card
Platform. Mobile Banking Technology uses web-based mobile technology to offer
financial cardholders the very best technology in conducting secure financial
transactions in real-time, protecting personal identity, and financial account
security. Mobile Banking Technology revenues for the six month period ended
December 31, 2021, and 2020 were $47,000 and $46,000, respectively.
• Other revenue, management fee - related party
Effective October 1, 2015, the Company entered into a management services
agreement with The Matthews Group for which the Company agreed to manage its
previous barcode technology business, on behalf of The Matthews Group, from
October 1, 2015 to June 30, 2022. Per the terms of the management services
agreement, the Company earned a fee of 20% of barcode technology operations
revenues through May 31, 2017. Subsequent to May 31, 2017 and up to June 30,
2022, The Matthews Group earns a fee of 35% from the barcode technology
operations. For the six month period ended December 31, 2021 and 2020, revenue
earned from the management services agreement was $150,000 and $167,000,
respectively.
Cost of Sales
Cost of sales for the six month period ended December 31, 2021 and 2020 totaled
$98,000 and $111,000, respectively.
Operating Expenses
Selling, general and administrative expenses for the six month period ended
December 31, 2021 and 2020 totaled $355,000 and $448,000, respectively. The
decrease in selling, general and administrative expenses was primarily due to
property taxes related to our office lease of $67,000 paid in the prior year
period, which did not occur in the current year period, and decreased
professional fees as compared to the same period of the prior year.
Other Income (Expenses)
On October 22, 2021, the Company was notified that its PPP loan forgiveness
applications totaling $118,000 were approved. No similar activity occurred in
the prior year period.
Interest expense for the six month period ended December 31, 2021 and 2020, was
$217,000 and $192,000, respectively. The increase was due to the increase in our
notes payable balance.
19
Liquidity and Capital Resources
Our cash balance on December 31, 2021 decreased to $179,000 as compared to
$238,000 on June 30, 2021. The decrease was the result of $319,000 in cash used
in operating activities offset by $260,000 in cash provided by financing
activities. Net cash used in operations during the period ended December 31,
2021, was $319,000, compared with $375,000 of net cash used in operations during
the same period of the prior year. Cash used in operations during the period
ended December 31, 2021, was primarily from our net loss of $355,000 and a gain
on forgiveness of our SBA PPP loans of 118,000, offset by an increase in
interest accrued on notes payable of $217,000, and general changes to our
working capital accounts of $63,000. Net cash provided by financing activities
of $260,000 during the period ended December 31, 2021, was due to proceeds
received from notes payable. During the same period of the prior year, net cash
provided by financing activities of $336,000 was from proceeds received from
convertible and notes payable.
The accompanying Condensed Consolidated Financial Statements have been prepared
assuming the Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. During the period ended December 31, 2021, the Company incurred a net
loss of $355,000 and cash used in operating activities of $319,000, and on
December 31, 2021, the Company had a working capital deficit of $7,130,000. In
addition, as of December 31, 2021, the Company is delinquent in payment of
$725,000 of its notes payable. These factors, among others, raise substantial
doubt about our ability to continue as a going concern within one year of the
date that the financial statements are issued. In addition, the Company's
independent registered public accounting firm, in its report on our June 30,
2021 financial statements, has raised substantial doubt about the Company's
ability to continue as a going concern. The Company's financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
The Company believes its cash and forecasted cash flow from operations will not
be sufficient to continue operations through fiscal 2022 without continued
external investment. The Company believes it will require additional funds to
continue its operations through fiscal 2022 and to continue to develop its
existing projects and plans to raise such funds by finding additional investors
to purchase the Company's securities, generating sufficient sales revenue,
implementing dramatic cost reductions or any combination thereof. There is no
assurance that the Company can be successful in raising such funds, generating
the necessary sales or reducing major costs. Further, if the Company is
successful in raising such funds from sales of equity securities, the terms of
these sales may cause significant dilution to existing holders of common stock.
The Company has traditionally been dependent on The Matthews Group, LLC, a
related party, for its financial support. The Matthews Group is owned 50% by Van
Tran, the Company's CEO/Executive Chair and a director, and 50% by Lawrence J.
Johanns, a significant Company stockholder.
Convertible notes and notes payable
Convertible notes and notes payable includes principal and accrued interest and
consists of the following at December 31, 2021 and June 30, 2021:
December 31, June 30,
2021 2021
(a) Unsecured convertible notes ($20,000 and
$19,000 in default) $ 63,000 $ 62,000
(b) Notes payable (in default) 449,000 440,000
(c) Notes payable (in default) 27,000 27,000
Total convertible notes and notes payable $ 539,000 $ 529,000(a) The notes are unsecured, convertible into common stock at amounts ranging
from $0.08 to $0.30 per share, bear interest at rates ranging from 5% to 8% per
annum, were due through 2011 and are in default or due on demand.
20
At June 30, 2021, convertible notes totaled $62,000. During the period ended
December 31, 2021, a nominal amount of interest was added to principal,
resulting in a balance owed of $63,000 at December 31, 2021. On December 31,
2021, $20,000 of the convertible notes were in default and convertible at a
conversion price of $0.30 per share into 65,286 shares of the Company's common
stock. The balance of $43,000 is due on demand and convertible at a conversion
price of $0.08 per share into 539,789 shares of the Company's common stock.
(b) The notes are either secured by the Company's intellectual property or
unsecured and bear interest ranging from 6.5% to 10% per annum, were due in
2012, and are in default.
At June 30, 2021, the notes totaled $440,000. During the period ended December
31, 2021, interest of $9,000 was added to principal resulting in a balance owed
of $449,000 at December 31, 2021. At December 31, 2021, $404,000 of notes are
secured by the Company's intellectual property and $45,000 of notes are
unsecured.
(c) The notes are unsecured and bear interest of 4% per annum and were due on
March 17, 2020, and are in default.
At June 30, 2021, the notes totaled $27,000. During the period ended December
31, 2021, a nominal amount of interest was added to principal, resulting in a
balance owed of $27,000 at December 31, 2021.
Convertible notes and notes payable-related parties
Convertible notes and notes payable-related parties includes principal and
accrued interest and consists of the following at December 31, 2021 and June 30,
2021:
December 31, June 30,
2021 2021
(a) Convertible notes-The Matthews Group $ 1,798,000 $ 1,741,000
(b) Notes payable-The Matthews Group 3,779,000 3,375,000
(c) Convertible notes-other related parties
($229,000 and $224,000 in default) 314,000 308,000
Total convertible notes and notes
payable-related parties $ 5,891,000 $ 5,424,000
(a) The notes are unsecured, convertible into common stock at $0.08 per share,
bear interest at rates ranging from 8% to 10% per annum, and are due on demand.
The Matthews Group is a related party and is owned 50% by Ms. Van Tran, the
Company's CEO/Executive Chair and a director, and 50% by Larry Johanns, a
significant shareholder of the Company. At June 30, 2021, convertible notes due
to The Matthews Group totaled $1,741,000. During the period ended December 31,
2021, interest of $57,000 was added to principal, resulting in a balance owed of
$1,798,000 at December 31, 2021. At December 31, 2021, the notes are convertible
at a conversion price of $0.08 per share into 22,473,937 shares of the Company's
common stock.
(b) The notes are unsecured, accrue interest at 10% per annum, and are due on
demand. The notes were issued relating to a management services agreement with
The Matthews Group dated December 31, 2015. At June 30, 2021, notes due to The
Matthews Group totaled $3,375,000. During the period ended December 31, 2021,
$260,000 of notes payable were issued and interest of $144,000 was added to
principal, resulting in a balance owed of $3,779,000 at December 31, 2021.
(c) The notes are due to a current and a former director, are unsecured,
convertible into common stock at per share amounts ranging from $0.08 to $0.30,
and bear interest at rates ranging from 8% to 10% per annum.
At June 30, 2021, convertible notes due to other related parties totaled
$308,000. During the period ended December 31, 2021, interest of $6,000 was
added to principal resulting in a balance owed of $314,000 at December 31, 2021.
At December 31, 2021, $229,000 of the notes were due in 2010 and are in default,
and the balance of $85,000 is due on demand. At December 31, 2021, $229,000 of
the notes are convertible at a conversion price of $0.30 per share into 762,081
shares of the Company's common stock, and $85,000 of the notes are convertible
at a conversion price of $0.08 per share into 1,070,050 shares of the Company's
common stock.
Commitments and Contractual Obligations
The Company leases its corporate office building from Ms. Tran, our chief
executive officer, on a month-to-month basis, for $4,000 per month. The
corporate office is located at 2445 Winnetka Avenue North, Golden Valley,
Minnesota.
21
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of
operations are based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, management evaluates its estimates, including
those related to impairment of long-lived assets, including finite lived
intangible assets, accrued liabilities, fair value of warrant derivatives and
certain expenses. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ materially from these estimates under different
assumptions or conditions.
Our significant accounting policies are more fully described in Note 1 to our
financial statements. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, and expenses, and the related
disclosures of contingent assets and liabilities. Actual results could differ
from those estimates under different assumptions or conditions.
Stock-Based Compensation
The Company periodically issues stock-based compensation to officers, directors,
contractors and consultants for services rendered. Such issuances vest and
expire according to terms established at the issuance date.
Stock-based payments to officers, directors, employees, and for acquiring goods
and services from nonemployees, which include grants of employee stock options,
are recognized in the financial statements based on their fair values in
accordance with Topic 718. Stock option grants, which are generally time vested,
will be measured at the grant date fair value and charged to operations on a
straight-line basis over the vesting period. The fair value of stock options is
determined utilizing the Black-Scholes option-pricing model, which is affected
by several variables, including the risk-free interest rate, the expected
dividend yield, the expected life of the equity award, the exercise price of the
stock option as compared to the fair market value of the common stock on the
grant date and the estimated volatility of the common stock over the term of the
equity award.
Revenue Recognition
Revenues for the Company are classified into mobile banking technology and
management fee revenue.
a. Mobile Banking Revenue
The Company, as a merchant payment processor and a distributor, recognizes
revenue from transaction fees charged to cardholders for the use of its issued
mobile debit cards. The fees are recognized on a monthly basis after all
cardholder transactions have been summarized and reconciled with third party
processors.
b. Other revenue, management fee - related party
On December 31, 2015, the Company sold all of its assets of its Barcode
Technology comprised solely of its intellectual property to The Matthews Group
and entered into a management services agreement with The Matthews Group to
manage all facets of the barcode technology operations, on behalf of The
Matthews Group, through June 30, 2022. The Company earned a fee of 35% of all
revenues billed up to December 31, 2021.
22
Recently Issued Accounting Standards
See Footnote 1 of consolidated financial statements for a discussion of recently
issued accounting standards.
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VERITEC, INC. 
