<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Amendment No. 1 to Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
(FEE REQUIRED)
For the fiscal year ended JANUARY 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(NO FEE REQUIRED)
For the transition period from _________ to _________
Commission file number 000-29969
YARC SYSTEMS CORPORATION, INC.
(Name of small business issuer in its charter)
CALIFORNIA 77-0185650
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
900 CALLE PLANO, UNITS J, K, CAMARILLO, CA 93012
(Address of principal executive offices) (Zip Code)
(805) 482-1879
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act: COMMON
STOCK (NO PAR VALUE)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
For the fiscal year ended January 31, 2000 the Issuer's revenues were
approximately $478,546
As of April 28, 2000, the aggregate market value of Issuer's voting
stock held by non-affiliates was approximately $5,113,330 (based upon the
average bid and asked prices of such shares).
As of April 28, 2000, the Registrant had 19,046,871 shares of common
stock outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
================================================================================
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Certain matters discussed herein may constitute forward-looking statements,
within the meaning of the Private Securities Litigation Reform Act of 1995 and
as such may involve risks and uncertainties. These forward-looking statements
relate to, among other things, expectations of the business environment in which
the Company operates, projections of future performance, perceived opportunities
the market and statements regarding the Company's mission and vision. The
Company's actual results, performance, or achievements may differ significantly
from the results, performance, or achievements expressed or implied in such
forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
YARC Systems Corporation, Inc., (the "Company"), produces software and systems
for the Printing industry, including LINUX servers which have been designed
specifically for total integration with the Internet. Not only can the servers
be sent images over the Internet, but they can be configured and upgraded from
any standard Internet browser. The Company's proprietary Postscript Raster Image
Processor (RIP) software, allows a computer image, whether it comes from a
digital camera, a scanner, or from a Desktop Publisher, to be professionally
printed using desktop proofers, laser copiers, or the large format printers that
make display signage.
Incorporated in California in 1988, YARC has for most of its history been
accumulating a portfolio of advanced technology and products. Its decision in
the mid-1990's to adopt Open Source software environments, including the LINUX
Operating System, has enabled YARC's products to include Internet technologies
which are recognized as some of the best in the Printing Industry.
These products include YARC's XP(TM) Color Server, its RIP Software, and its
YARC-RIP(TM) and YARC-EZ(TM) Mac(TM) devices.
STRATEGY FOR GROWTH
INTERNET FOCUS
E-Commerce in the Printing Industry has been slow to take off, primarily because
of the delayed arrival of Broadband technologies, which are essential for
handling large file sizes. Broadband is at the heart of YARC's Internet
strategy. While YARC's competitors are still focusing on Old-Economy concepts,
and producing web products which are essentially Internet adaptations of the
traditional "brokerage" concept, YARC has been producing technologies and
products which are ready to take advantage of the explosion in Broadband
delivery. YARC's products enable the entire communication path between Graphic
Artists and the Printing Presses to be effected over the Internet.
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MERGER AND ACQUISITION STRATEGY
YARC intends to grow by merger and acquisition. It intends to acquire
Corporations who have fallen a little behind with their technology and whose
product range can be quickly made more competitive with the infusion of YARC's
LINUX, Internet and Postscript RIP technologies. The Company also intends to use
the merged sales forces to assist YARC to more effectively market its own
product range.
INTERNET PROPERTIES
The Company's primary website is located at the following domain names:
<TABLE>
<S> <C> <C> <C> <C>
yarc.com yark.com yarc.net yark.net visual-edge.com
</TABLE>
The company also operates a B2C and B2B E-Commerce site at:
SecureShop.yarcrip.com
Sites for engineering and technology information are at:
<TABLE>
<S> <C> <C> <C>
ftp.yarcrip.com yarcrip.com yarcxp.com yarcez.com
</TABLE>
The following domain names are currently inactive:
<TABLE>
<S> <C> <C>
epsononlineshop.com epsononlinestore.com epson-online.com
onlineepsonshop.com onlineepsonstore.com epsononline.com
</TABLE>
YARC's showcase for 3D Printing and Signage is at:
<TABLE>
<S> <C> <C>
photo-motion.com 3-Ddisplays.com
3D-signs.com 3Dsigns.com 3-Dsigns.com
3-Dsign.com flip-signs.com lenticular-signs.com
lenticularsigns.com motion-signs.com lenticular-development.com
big3-D.com big-3D.com superiorgrafics.com
superiorgraphix.com 3Dprints.com 3-Dprints.com
3-Dposters.com 3Dposter.com 3-Dposter.com
3Dsigns.net 3-Dsigns.net 3Dsign.net
3Dprints.net 3-Dprints.net
</TABLE>
None of the material on any of these domains, including their subdomains such as
"www.*", is incorporated by reference into this Registration Statement.
PRINCIPAL TECHNOLOGIES AND PRODUCTS
POSTSCRIPT RASTER IMAGE PROCESSOR (RIP) SOFTWARE.
When a printed page is stored in a computer it consists of bit-mapped images,
text, and drawn objects. The page layout in the computer is sent out to a
printer using a format known as a Page Description Language ("PDL"), which is a
software language that describes the layout and contents of the final printed
page. Like the storage format used in the computer itself, the PDL data is
usually
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created in what is called an object-oriented, or vector graphics format; meaning
that the image elements are described in terms of geometrical objects, such as
lines, arcs, and circles. "Postscript" is the PDL that has become the standard
in the professional printing and pre-press industries.
When Postscript data is sent to a printer or a monitor it is necessary to
convert the image from the vector data to a form in which the objects in the
image can be displayed as a "raster" pattern of dots. This is the function of
the Raster Image Processor ("RIP"). The RIP software interprets the Postscript
vector data and converts it to bit-mapped data for printing or display. Although
desktop printers often simply output a rasterized version of the monitor display
using "Printer Drivers", this approach does not yield sufficiently high
resolution for the Professional pre-press marketplace. Consequently, the vast
majority of professional printers use Postscript RIP software. The quality of a
print-out is governed to a large extent by the quality of the Postscript
software.
Adobe Systems Inc. defined the Postscript language, and it has proven a very
difficult language to implement. Only a handful of companies, worldwide, have
produced Postscript Interpreters capable of being used by printing industry
professionals. YARC is one of those companies.
The vast majority of printer manufacturers license their Postscript
interpretation software from Adobe Systems Inc.
Because YARC has developed its own Postscript PDL, YARC does not have to pay
royalty fees to Adobe. Additionally, YARC can license its own Postscript PDL to
printer companies in the same way as Adobe, and generate revenues from the
licensing market.
The advantage to YARC that accrues from having its own Postscript PDL, is that
YARC does not pay royalties on the printing products that YARC itself
manufactures. This gives YARC a significantly higher gross margin on its LINUX
based Servers and Macintosh Software RIP products.
COMPETITORS FOR THE POSTSCRIPT RIP SOFTWARE.
The company believes that there are three other public companies licensing
Postscript RIP software which produce substantially the same results as YARC's
RIP in the professional digital color output marketplace. These are Xionics Inc
(recently acquired by Oak Technologies, Inc, Harlequin Ltd. and Adobe Systems
Inc.
THE YARC-XP LINUX COLOR SERVER
The Company's XP SERVER(TM) is primarily sold to the Printing and Pre-press
industries. It uses the LINUX operating system to improve connectivity and
reliability by comparison with most of YARC's competition, whose products are
most often based on variants of Windows NT. The XP Server connects directly to
the Internet, as well as to Corporate networks of Windows, Macintosh or Unix
workstations. The XP is the only server currently available where all of the
server's internal functions, including color management, are made available to
the user, over the network, using a standard Internet browser.
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Any XP Server can also be accessed by YARC's staff over the Internet, or via a
PPP dial-in line. Technical support or problem diagnosis can be offered to the
customer at a distance, considerably lowering the overhead associated with
maintaining a worldwide force of service technicians.
In 1998 YARC placed one of its XP Servers on the Internet at http://yarcxp.com
to allow easy evaluation of its Internet connectivity by potential customers and
investors.
COMPETITORS FOR THE YARC XP SERVER
The Company believes that there are two other public companies that offer Color
Servers which offer similar functionality to the Company's XP Server.
Electronics for Imaging, Inc, (NASDAQ: EFII) sells the Windows-NT-based
"Fiery(TM)" servers, aimed primarily at the Office user but also now supporting
Proofing functionality for the Pre-press industry. Splash Technology Holdings,
Inc., (NASDAQ: SPLH) has a range of servers based on the Macintosh computer
platform. Splash primarily partners with a single printer manufacturer, Xerox
(NYSE: XRX)
Splash has recently announced that it has LINUX based servers, and that it
intends to grow its business during 2000 by expanding that part of its product
range.
The Company believes that its Color Server is the only one of its kind that has
fully integrated communication over the Internet.
THE YARC-EZ AND YARC-RIP SOFTWARE RIPs FOR MACINTOSH COMPUTERS
YARC ships non-server versions of its RIP software for Macintosh users, who
comprise much of the professional publishing marketplace. The YARC-EZ(TM)
Postscript Software RIP, is a low cost Macintosh Application, primarily being
used for proofing by the Printing and Pre-press industries. The YARC-RIP(TM)
Postscript RIP is similar to the YARC-EZ but includes its own PowerPC Computing
Coprocessor for improved multi-tasking and better networking.
COMPETITORS FOR THE YARC-EZ AND YARC-RIP SOFTWARE RIP PRODUCTS
The Company believes that there are four public companies who can be regarded as
competitors for the Company's software RIP products. There are also a number of
small private companies with products in the printing and pre-press segment of
the industry. Adobe Systems Press ready(TM) software RIP competes in the
Proofing segment of the market. Onyx Graphics, recently acquired by Europe's
Greta Imaging, sells the "Pastorship(TM)" software RIP product, primarily aimed
at the Signaling marketplace. The Scanvec Company Ltd. sells the AccuPrint(TM)
and PhotoPrint(TM) Software RIP products for both PC and Macintosh
Personal Computers. The Harlequin software RIP has been licensed by several
private OEM's, who sell and support products in the retail marketplace.
<PAGE> 6
MARKETING AND DISTRIBUTION CHANNELS
E-COMMERCE
The Company's operates an E-Commerce website, at http://SecureShop.yarcrip.com/,
which was launched in October of 1998. In April, 1999, the Company enhanced the
site with the capability to handle B2B transactions from dealers and
distributors as well as end-user transactions. Most of YARC's U.S. RIP sales
result from contacts generated by this E-Commerce website.
INTERNATIONAL
YARC sells its product in the Far-east and Europe through both exclusive and
non-exclusive distributors.
OEM BUSINESS
Several manufacturers have sold YARC's products as part of a complete system,
usually badged with the OEM's own name. Principal OEM partnerships have been
struck with Linotype AG, Dai Nippon Screen, DCA Inc., Honeywell Aerospace and
Japan's Roland DG.
HISTORY OF THE BUSINESS
The Company was incorporated on January 27, 1988 to develop and market a new
method of increasing the power of personal computers using UNIX based software
tools.
The Company's initial technology focus was "Computing Coprocessors", add-in
cards containing an advanced CPU and proprietary YARC Operating System software,
that allowed the UNIX tools, especially C and Fortran Compilers, to operate in
both MSDOS and Macintosh PC environments. This proprietary software was later
extended to PC's running Microsoft Windows and Windows NT.
The Company's initial business model was to supply engineering services, and
subsequently sell the proprietary Computing Coprocessors under OEM agreements.
During the early 1990's YARC performed design services for Microsoft Inc.,
working as an OEM partner on Microsoft's "TrueImage(TM)" Postscript Raster Image
Processor (RIP). YARC also shipped product to the German printing giant,
Linotype AG. Other early Printing Industry partners included Pipeline Associates
(now acquired by Electronics For Imaging, Inc), Advanced Micro Devices, Inc.,
and Agfa Compugraphic, a division of Europe's Agfa-Gevaert Group. YARC also
entered into an agreement with Dai Nippon Screen for the supply of YARC
Computing Coprocessors to be used in Screen DTP imagesetter controllers. These
controllers were based on RIP software from Harlequin Ltd., in the UK. YARC
continued to supply product against this contract until 1996.
YARC also achieved early recognition in sales of systems into the Macintosh 3D
Graphics marketplace. YARC's formed alliances with several vendors, selling
versions of their application software together with its Computing Coprocessors.
PIXAR produced a version of their "RenderMan(TM)" software specially adapted for
the YARC Coprocessor technology. The YARC
<PAGE> 7
version of PIXAR's Renderman could use as many YARC CPU cards as the user wanted
to install, and the speed of the Rendering increased as each additional YARC CPU
was installed. This was achieved through YARC's innovative "Parallel Processing"
technology.
In 1993, YARC was awarded the prestigious MacUser "Eddy" Statue for the "Best
Accelerator Card of 1993".
in 1994 YARC decided to de-emphasize its 3D Graphics business and focus its
engineering effort towards the goal of producing its own version of Adobe
Systems Inc. Postscript RIP software, a feat which only a handful of companies
worldwide have successfully accomplished.
At the same time YARC started to become involved in the Open Software
Foundation's Open Source project, the precursor to the LINUX operating system.
By 1994 YARC had based its tools on the GNU C compiler, which in the subsequent
years grew into the tools for the Operating System we now know as LINUX.
YARC initially shipped its GNU based Hydra Multiprocessing coprocessor card in
1995, and also released its first RIP software. Both were developed using the
Open Software Foundation tools. YARC began to accumulate LINUX expertise within
its Engineering group.
YARC shipped the first full Color versions of its Postscript RIP software in
June 1995, when a Canon Laser Copier RIP controller was displayed at PC Expo in
New York. Subsequently, in October 1995, YARC demonstrated its first wide-format
color RIP in the "Masters of Media" section of Seybold Seminars, in San
Francisco.
In November of 1996, YARC Systems Ltd. was Incorporated in the United Kingdom to
provide product and sales support for YARC's United Kingdom and European
customer base.
In December, 1997, YARC released and demonstrated the YARC-XP Color Server. This
was the first RIP Color Server in the industry which used the LINUX operating
system, and which was designed for direct connectivity to the Internet.
In January, 1998, after exhaustive testing of our Postscript software, Japan's
Roland DG chose to OEM the YARC-EZ Postscript RIP software for sale with their
new wide-format printers for the Japanese sign-making industry. This OEM
partnership has continued to this date.
In the hopes of improving its US Sales and Marketing performance, YARC appointed
Mr. Joseph P. LaBruna as President at the beginning of 1998. But the company was
unable to compete effectively against its larger competitors, and Mr. LaBruna
left the company later that year.
By this time the Company's customers were generally very happy with the level of
technology in the products they had bought, but the Company's Sales and
Marketing outreach were still ineffective.
<PAGE> 8
PLAN OF OPERATIONS
MERGERS AND ACQUISITIONS
Early in 1999 Management therefore decided to concentrate on leveraging YARC's
technological strengths by seeking Merger and Acquisition partners who already
had strong sales channels, especially partners in market segments where sales
growth of the Company's products could be more rapidly achieved.
In August of 1999, the Company signed a merger agreement with Quik Pix Inc.,
Buena Park, CA. On February 4th, 2000, Management of both companies decided not
to proceed with the merger transaction. No merger documents were filed in the
respective states. YARC is actively seeking an alternative partner for the
Company's "3Dsigns.com" Internet properties.
CTP STRATEGY
Computer-To-Plate technology (CTP) is a method for making Printing Press plates
directly from the computer software output, without any intervening manual
handling of photographic films or materials. The company believes that a
business combination with a CTP manufacturer would create a symbiotic
environment where YARC's software and Internet technologies would give the
business combination a significant edge in the upcoming Internet economy. The
same Graphic Arts professional who creates the artwork can be empowered with
control over all phases of the printing of that artwork. After transmission of
the files to a YARC Internet Server, a proof can automatically be created, and,
upon verification of that proof, the CTP plates manufactured for the printing
press. The Company believes that this workflow will ensure optimal quality and
minimal delay by comparison with today's workflow, where a broker is typically
used to interface between the Graphic Artist and the Printing Press operators.
During 1999, YARC entered into a relationship with CTI Imaging Systems Inc., and
its Principal, Mr. Hank Bechard. Many years ago Mr. Bechard founded Autologic,
which is now Autologic Information International, Inc. YARC and CTI agreed to
join forces in order to pursue an acquisition of Autologic, and discussions
commenced. Autologic manufactures printers which use CTP technology. In January
2000 the Company made an offer to Volt Information Sciences Inc (VIS) to acquire
a majority interest in Autologic. The Company subsequently received a letter
from a law firm representing VIS stating that VIS "will not enter into any
negotiations with YARC". YARC has subsequently retained legal counsel to advise
on the best strategy for the Company to use in moving forward with this proposed
acquisition.
The Company has entered into discussions Printware Inc, who also manufacture CTP
products, regarding a possible business combination. No agreement has been
signed at this time, and no assurance can be given that any such agreement will
be achieved.
INTERNET STRATEGY
Brochures, catalogs and newspapers, are all created by Graphic artists using
computer software. The files associated with commercial publishing are very
large, typically in the range of 20 Megabytes to 100 Megabytes. Consequently,
E-Commerce in the Printing Industry has been slow to take off,
<PAGE> 9
awaiting the infrastructure that can move such file sizes quickly and
economically. Such infrastructure is commonly known as "Broadband" technology.
Broadband is at the heart of YARC's Internet strategy.
The Company believes that YARC's competitors are still focusing on Old-World
concepts, producing products which are essentially Internet versions of the
conventional "brokerage" concept, where a broker acts as a specialist
intermediary between the graphic artist and the printing press professionals.
YARC has been producing technologies and products which are ready to take
advantage of the explosion in Broadband delivery. They allow total communication
between the Graphic Artists and the Printing Presses to be effected over the
Internet. The Company believes that YARC is in a unique position to produce such
technologies, as it has produced its own proprietary RIP software, and thus has
total control over all phases of the communication between the Desktop
Publishing software and the printing presses.
MANUFACTURING
The Company currently contracts with outside suppliers for certain components,
including but not limited to, circuit boards. Assembly, quality control and
shipping are all done at the Company's headquarters.
DEPENDENCE UPON KEY SUBCONTRACTORS.
YARC uses subcontractors to handle assembly of printed circuit boards and
computer chassis. YARC has, from time to time, used a variety of local
subcontractors to perform its manufacturing, and is not dependent on any
particular manufacturing partner.
DEPENDENCE UPON KEY SUPPLIERS.
YARC's product range has been designed to use as many "off-the-shelf" components
as possible. Although industry conditions may change, especially due to normal
product life cycles, YARC has little dependence upon any particular supplier.
YARC is currently using Power-PC.(TM) Microprocessors which are manufactured
only by IBM Microelectronics and Motorola. YARC also uses MACH(TM) FPGA devices
designed by Advanced Micro Devices and Vantis. Vantis has recently been acquired
by Lattice Inc., but no interruptions of supplies has been observed to date.
DEPENDENCE UPON KEY CUSTOMERS.
The nature of the OEM business is a reliance from time to time on relationships
with manufacturers and business partners which amount to a significant
proportion of YARC's income in any one year. Over the last five years YARC's
income has significant depended on the relationships with Dai Nippon Screen,
D.C.A., Inc., and Honeywell Commercial Aviation Systems.
<PAGE> 10
YEAR 2000 COMPLIANCE
During 1999, the company completed a comprehensive review of its computer
systems and its products to identify all software that could be affected by the
inability of many existing computer systems to process time-sensitive data
accurately beyond the rollover from the 20th to the 21st centuries. No problems
with operation of the Company's products were reported related to the rollover
of the Calendar from 1999 to 2000. Minimal disruption occurred to the Company's
MRP and Accounting systems, and no significant remedial costs have been
incurred.
RESEARCH AND DEVELOPMENT SPENDING
In proportion to its revenues, YARC has spent heavily on Research and
Development throughout its history. During Fiscal 1998 and 1999 YARC spent
$277,773 and $272,862 respectively.
NUMBER OF EMPLOYEES
YARC maintains a core staff of experienced managers, technical experts and
marketing professionals. This core management currently numbers seven. The
Company augments this staff with up to twenty (20) additional employees as
needed to satisfy project needs. None of the employees are subject to a
collective bargaining agreement, and the Company believes that its relations
with its employees is good.
ENVIRONMENTAL COMPLIANCE
YARC does not discharge any controlled materials, nor are any used in its
premises, and the Company is in compliance with relevant federal, state and
local environmental laws.
INTELLECTUAL PROPERTY
The Company does not currently hold patents, copyright marks or service marks on
any of its products. The Company does, however, own a portfolio of Internet
Domain names to help it promote its business. The most significant of these were
listed at the head of this document. It also uses a number of Trademarks to help
provide market identification for its product range.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are housed in a 4,537 square foot facility
located in Camarillo, California. The premises are used for all of the Company's
general office and administrative purposes, as well as research, design and
production of computer products. The lease terminates on December 31, 2000.
ITEM 3. LEGAL PROCEEDINGS
In January 2000, the Company received a letter from Seiko Epson Corporation and
Epson America, Inc. (collectively "Epson"), alleging that certain Internet
domain names registered by the Company
<PAGE> 11
in March 1999 constituted the unlawful use of the EPSON trademark. The domain
names cited included onlineepsonshop.com, onlineepsonstore.com,
epson-online.com, epsononline.com, epsononlineshop.com, and
epsononlinestore.com. The letter requested that the Company desist from using
these domain names and that it transfer ownerships of such domain names to
Epson. The Company believes this disagreement will be settled amicably in light
of the working relationship between the parties.
In June, 1999, the Company received a letter from Visual Edge Technologies Inc.,
alleging that an Internet domain name registered by the Company in November 1998
constituted the unlawful use of two trademarks. The domain name cited was
"visual-edge.com". The letter requested that the Company desist from using this
domain name. The Company last heard from counsel for Visual Edge in July,1999,
and believes this disagreement will be settled amicably.
In April 1999, a lawsuit entitled LaBruna v. Yarc Systems Corp, et al., No.
PAS-L1796-99 was filed against the Company and its officers in Passaic County
Superior Court in New Jersey. The lawsuit by Joseph LaBruna, the Company 's
former President, alleges that the Company breached its employment agreement
with Mr. LaBruna. The complaint did not specify the damages sought. On January
19, 2000, the parties attended a mandatory non-binding arbitration the result of
which was an award in favor of Mr. LaBruna in the amount of $37,560 in back
wages and 100,000 shares of the Company's common stock. The Company does not
intend to contest the arbitrator's award, however, no assurance can be made that
Mr. LaBruna will not contest the award. In May 1998, the Company received a
letter from Electronics For Imaging, Inc. ("EFII") alleging that the Company's
ColorSync technology infringed on patents commonly referred to as the "919"
patent and "048" patent. The Company believes that EFII is the assignee/owner of
both patents. These patents cover the technology used to match the color on
printer paper with the color in the original image on the user's monitor. The
Company responded by noting that: (i) the Company developed the ColorSync
technology in conjunction with Apple Computers, Inc. ("Apple"), (ii) ColorSync
was the subject of a valid license agreement between EFII and Apple, and (iii)
the settlement between EFII and Apple in early 1996 extended protection to
certain third parties such as the Company using ColorSync technology. On August
7, 1998, the Company received an email from EFII acknowledging that the
Company's ColorSync technology was subject to a valid license agreement between
EFII and Apple, but that using this licensed technology beyond the MAC platform
would not be. Since August 1998, the Company has not received any correspondence
from EFII regarding its ColorSync technology or patents 919 and 048.
In addition, the Company is involved from time to time in litigation arising in
the normal course of its business. The Company believes that the ultimate
resolution of such claims will not materially affect the Company's business or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE> 12
ADDITIONAL INFORMATION FROM FORM 10-SB FILED ON 15 MARCH 2000
STRATEGY
Management believes that the Company's technology offers superior
performance capabilities which provide important competitive advantages to its
customers. The Company intends to pursue this opportunity through programs
designed to expand the Company's overall market exposure and penetration. The
key elements of the Company's strategy to accomplish these goals are the
following:
Focus on Internet Connectivity; Disintermediation
The Company intends to focus its product offerings on Internet connectivity.
Internet connectivity refers to communication between the user and the output
device via the Internet. The Company's LINUX servers, for example, can receive
images over the Internet and can be configured and upgraded from any standard
Internet browser. This direct link between the artist and output device is in
contrast to the traditional brokerage model wherein where a broker acts as a
specialist intermediary between the artist and the printing press professional.
The Company believes that eliminating the intermediary would improve output
quality and would result in time and cost savings to the end-user.
Focus on Broadband Delivery
YARC intends to focus on technologies and products which are ready to take
advantage of the growth in Broadband delivery. Broadband is the infrastructure
required to transport large files (such as proofs) quickly and economically.
Brochures, catalogs and newspapers are created by graphic artists using computer
software. The files associated with commercial publishing are very large,
typically in the range of 20 Megabytes to 100 Megabytes. Broadband delivery
would enable artists to transmit their works to the output device directly via
the Internet. The Company believes that its solution is attractive to graphic
artists because it leverages the latest technology in order to shift control of
the printing process to the artist.
Utilize Mergers and Acquisitions for Growth
The Company intends to grow by merger or acquisition. The Company intends to
seek merger partners with strong sales channels, especially partners in market
segments where sales growth of the Company's products could be rapidly achieved.
In August of 1999, the Company signed a merger agreement with Quik Pix Inc.,
Buena Park, CA. On February 4th, 2000, Management of both companies decided not
to proceed with the merger transaction. No merger documents were filed in the
respective states. YARC intends to seek out other potential partners in the 3D
printing and signage industry.
<PAGE> 13
Enter the Computer To Plate Market
The Company's intends to enter the Computer To Plate (CTP) segment of the
printing market via a merger or acquisition. The Company believes that a
business combination with a CTP manufacturer would create a symbiotic
environment where YARC's software and Internet technologies would give the
business combination a significant edge in the Internet economy. CTP is a method
for making printing press plates directly from the computer software output,
without any intervening manual handling of photographic films or materials. The
Company's approach empowers the graphic artist professional by giving the artist
control over all phases of the printing of the artwork. For example, after
transmission of the files to a YARC Internet Server, a proof can automatically
be created, and, upon verification of that proof, the CTP plates can be
manufactured for the printing press. The Company believes that this method will
ensure optimal quality and minimal delay as compared with the traditional broker
model.
In 1999, YARC entered into discussions with CTI Imaging Systems Inc., and its
principal, Mr. Hank Bechard, regarding a potential acquisition of Autologic
Information International, Inc. ("Autologic"). Mr. Bechard is a founder of
Autologic. Autologic manufactures printers which use CTP technology. In January
2000, the Company made an offer to Volt Information Sciences Inc (VIS) to
acquire a majority interest in Autologic. The Company subsequently received a
letter from a law firm representing VIS indicating that VIS would not enter into
any negotiations with YARC. The Company intends to continue its attempts to
acquire Autologic.
The Company has entered into discussions with Printware Inc, a manufacturer of
CTP products, regarding a possible business combination. No agreement has been
signed at this time, and no assurance can be given that any such agreement will
be achieved.
<PAGE> 14
SIGNIFICANT EMPLOYEES
The following table sets forth certain information concerning
certain other significant employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Neil Eastwood 32 Graphic Arts Manager
Dion Whittaker 28 Chief Engineer
</TABLE>
Neil Eastwood joined the Company in 1998. Mr. Eastwood is an expert in
the inter-relation between Photographic Imaging and Digital Technologies. Mr.
Eastwood lectured on Digital Imaging at Blackburn College, in the United
Kingdom, from 1995-1998. Mr. Eastwood graduated with a Higher National Diploma
in Art and Design from Watford College of Art and Design (UK) in 1986, and has
over decade of experience in the Digital Printing industry.
Dion Whittaker has been with the Company since 1995. Mr. Whittaker wrote
the LINUX spooler subsystem for the Company's XP Server. He also designed,
together with Dr. Jeppesen, the hardware and software RIP components that
interact with the LINUX execution environment. Mr. Whittaker received a Bachelor
of Engineering in computer science, with first class honors, from Curtin
University in Western Australia.
OFFICERS AND DIRECTORS - supplementary information
The officers of the Company serve at the discretion of the Board. Each
director of the Company serves until such director's successor is elected and
qualified or until the director's death, retirement, resignation or removal.
Directors do not receive compensation for their services. The Company does
not currently intend to pay directors any cash compensation for services, but
will reimburse them for out-of-pocket expenses they may incur on behalf of the
Company. No such expenses were reported or reimbursement provided for the
previous three fiscal years or the current interim period
EMPLOYMENT AGREEMENTS
The Company has not entered into employment agreements with any executive
officer.
<PAGE> 15
STOCK OPTION PLAN
The Company established the 1992 Nonstatutory Stock Option Plan ("Option
Plan") to attract and retain qualified persons for positions of substantial
responsibility within the Company and to provide an incentive to the employees
to promote the Company's business. The Option Plan is administered by the Board
of Directors.
The Options granted under the Option Plan were not intended to qualify as
"Incentive Stock Options" within the meaning of Section 422(b) of the Internal
Revenue Code, as amended, but were implemented to encourage stock ownership
among the Company's directors, officers, and certain key persons performing
services for the Company to encourage such persons to acquire proprietary
interest in the success of the Company and to serve as an incentive to remain
in the Company's service. Each Option granted is evidenced by a Stock Option
Agreement and is granted for a maximum period of three (3) years. The price per
share of Common Stock granted by the Option is determined by the Board of
Directors, in its sole discretion. The Option Plan authorizes the issuance of a
maximum of 8,000,000 shares of Common Stock.
DIVIDENDS
To date, the Company has not declared or paid any cash dividends with
respect to its Common Stock. The policy of the Board of Directors has been, and
continues to be, to retain earnings in order to provide for the growth of the
Company. Consequently, no cash dividend or any other dividend is expected to be
paid on the Common Stock in the foreseeable future. Although the Company's
Common Stock is entitled to receive dividends, there can be no assurance that
the Company will have sufficient funds to pay such dividends, or even if such
funds are available, that the Company will be permitted to make such dividend
payments under the provisions of the California General Corporation Law and
other applicable laws. California law prohibits the Company from paying
dividends or making other distributions if the Company
would be unable to pay its debts as they become due in the usual course of
business or if the Company's assets would be less than its liabilities after
giving effect to such dividend or distribution. The Company does not anticipate
the payment of dividends on the Shares in the foreseeable future, even if funds
are legally available for dividends.
<PAGE> 16
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation do not provide for indemnification
of the Company's directors and officers, however, such indemnification is
permitted in accordance with and as limited by its Bylaws and California General
Corporation Law ("Corporation Law").
The Company's Bylaws provide that the Company is permitted to indemnify
its directors and officers to the maximum extent permitted by the Corporation
Law. The Bylaws further provide that the Company has the power to indemnify its
directors and officers against expenses, judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any proceeding
arising out of any circumstance in which such person was acting as an agent of
the Company. The Company also has the power to advance to each such person those
expenses incurred in defending any such proceeding to the maximum extent
permitted by the Corporation Law.
Pursuant to Section 317 of the Corporation Law, the Company has the power
to indemnify a director or officer in a civil proceeding if such director or
officer was acting on behalf of the Company at the time and in the circumstances
giving rise to the proceeding and was acting in good faith and in a manner such
officer or director reasonably believed to be in the best interests of the
Company at such time. In the case of a criminal proceeding, the Company has the
power to indemnify its directors and officers provided that such person had no
reasonable cause to believe that their conduct was lawful. The Corporation Law
limits the Company's ability to indemnify its directors and officers where the
director or officer is deemed to be liable to the Company in the execution and
performance of their duties to the Company. Notwithstanding the previous
sentence, the Corporation Law allows the Company to purchase and maintain
insurance on behalf of any agent of the Company whether or not the Company would
have the power to indemnify such agent against liability pursuant to Section 317
of the Corporation Law.
<PAGE> 17
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our Common Stock is quoted Over the Counter on the electronic Bulletin Board.
The following table sets forth the range of high and low bid quotations for the
Company's Common Stock for the periods indicated as reported by the National
Association of Securities Dealers, Inc. Such market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
YEAR CALENDAR PERIOD HIGH LOW
- - ---- --------------- ---- ---
<S> <C> <C> <C>
1998 First Quarter $0.875 $0.468
Second Quarter 0.875 0.40
Third Quarter 1.04 0.28
Fourth Quarter 0.50 0.28
1999 First Quarter 0.41 0.18
Second Quarter 0.42 0.23
Third Quarter 0.32 0.19
Fourth Quarter 2.906 0.19
2000 First Quarter 1.593 0.689
</TABLE>
In April 24, 2000, the closing bid price of the Common Stock as reported on the
OTC Bulletin Board was $0.375 per share. As of April 24, 2000, there were
approximately 87 holders of record of the Common Stock. This does not include
beneficial shareholders whose Common Stock is held in street name.
To date, the Company has not paid or declared any dividends with respect to its
Common Stock. The current policy of the Board of Directors is to retain
earnings, if any, in order to provide for growth of the Company. Consequently,
no cash dividend or any other dividend is expected to be paid on the common
stock in the foreseeable future. Furthermore, there can be no assurance that the
future operations of the Company will generate the revenues and cash flow
necessary to declare a cash dividend or that the Company will have legally
available funds to pay dividends.
The Company's Transfer Agent is Jersey Transfer and Trust Corporation located in
Verona, New Jersey.
RECENT SALES OF UNREGISTERED SECURITIES
During the period from February 1997 through February 2000, the Company
exchanged 1,917,256 shares of its Common Stock in full and complete satisfaction
of outstanding notes and debts with existing security holders. Upon issuance of
the shares, the notes and debts were canceled. No
<PAGE> 18
commission or remuneration was paid directly or indirectly for soliciting such
exchange. All of the common stock issued contained restrictive legends. The
common stock was issued pursuant to an exemption from registration under Section
3(9) of the Act.
Pursuant to the Company's 1992 Nonstatutory Stock Option Plan, the Company
issued options to purchase 4,220,000 shares of its common stock to certain key
employees from December 1998 through January 2000 at prices ranging from $0.20
to $0.44. As of this date options totaling 1,905,645 shares have been exercised.
The shares were issued subject to an exemption from registration under Section
4(2) and Rule 701 of the Act. All of the securities issued in such transactions
contained restrictive legends.
During the period from July 1997 through March 1998, the Company sold 1,756,000
shares of its common stock at $0.57 per share to accredited investors only. The
offering was not underwritten, and there were no underwriting discounts or
commissions. Investors acquired the shares for their own account and not with a
view to resale. The sales were made in reliance upon an exemption from
registration pursuant to Regulation D under the Act.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of financial condition and results of operations should
be read in conjunction with the audited Consolidated Financial Statements and
the notes thereto, included elsewhere in this report. This discussion contains
Forward-Looking Statements that involve risks and uncertainties.
Overview:
YARC Systems Corporation, Inc., (the "Company" or "YARC"), develops, produces
and markets software and color servers that connect desktop computers with many
printing engines. The Company's products enable those printers to produce high
quality printouts at high speeds. More information about the current product
range is contained in Item 1 of this document.
The Company expended considerable effort and capital during the fiscal year
ending (hereafter `Fy') January 31, 1999 in an attempt to form significant OEM
partnerships within the printing industry, but was unable to effectively compete
with larger and better financed competitors, such as Electronics For Imaging,
Inc.
Early in calendar 1999 the Company initiated aggressive restructuring. It was
clear that the Company had to achieve a critical mass sufficient to give our OEM
customers confidence in our financial stability. The Company therefore decided
to implement fundamental changes to its strategic focus, as described in Item 1,
under the section entitled "Strategy", and is expending a majority of its
efforts and capital on using its technology base to enhance growth by merger and
acquisition. This restructuring involves a recognition that the quality of the
Company's software RIP products allows the Company to address other more
lucrative market segments, such as Computer To Plate (CTP), even though those
segments are technically more demanding than the Company's traditional market
base.
The company is applying its software expertise in related fields and
technologies, such as LINUX and CTP, and intends to expand its market presence
by pursuing an aggressive strategy of mergers and acquisitions within those
fields and technologies.
Merger and Acquisition Activities
In May of 1999 YARC commenced discussions with a view to the acquisition by YARC
of 100% of the common stock of Quik Pix Inc, of Buena Park, California, in a
stock-for-stock merger transaction. Even though YARC's Due Diligence was
incomplete, a definitive merger agreement was executed by both companies in
August 1999, and a modified definitive agreement shortly thereafter. The
shareholders of Quik Pix Inc subsequently agreed to the terms of the merger. On
4th February 2000, however, YARC gave Quik Pix notice that it was exercising its
right under the merger agreement to withdraw from the transaction. The reasons
for the withdrawal included (a) Quik Pix management had requested termination
(b) The revenues being generated by Quik Pix Inc were significantly less than
YARC had been led to expect, and (c) YARC had been forbidden to use its Standby
Letter of Credit to guarantee any funds advanced to
<PAGE> 19
Quik Pix Inc because of item (b). Both YARC and Quik Pix agreed to discontinue
the merger at that time, and no substantive discussions have occurred since that
date.
During December 1999 YARC formed an alliance with CTI Imaging Inc, a private
company headed by Mr. Hank Bechard, the founder of Autologic Information
International Inc. The object of this alliance is to achieve a merger
relationship between the three companies. During January, 2000, YARC met with Mr
William Shaw, Chairman and CEO of Autologic, and Chairman and President of Volt
Information Sciences, Autologic's majority owner. Subsequent to these meetings
both Volt and Autologic publicly withdrew from further discussions. YARC
continues to believe that, together with CTI Imaging, it has key technologies
and management expertise needed for the future growth of Autologic, and is
continuing attempts to reopen discussions between the respective organizations,
but can give no assurances that these attempts will be successful.
During January 2000, YARC was approached by the management of Printware Inc, St.
Paul, Minnesota, to initiate merger negotiations with the aim of preventing what
that management perceived as a threat from a group of dissident shareholders.
Printware is a company in the CTP segment of the printing market that YARC has
targeted as a strategic focus under its reorganization strategy. The two
companies were unable to agree on terms, however, and, YARC subsequently has
pursued informal discussions with the dissident shareholders. YARC is currently
awaiting the outcome of the proxy contest between Printware management and their
dissident shareholders. No assurance can be given that any agreement will ever
be struck with Printware, but YARC is continuing to pursue all avenues of
communication.
Customer Base
YARC's customer base consists of both OEM and End-User customers. Most of the
Company's End-User customers bought their products from dealers and
distributors. They can generally be described as graphic artists and pre-press
contractors whose work is sophisticated and complex, requiring software
reliability and accurate color matching. YARC believes that its RIP products
excel in both these characteristics. YARC has an International customer base,
and the majority of its end-user revenues comes from customers located outside
North America. Even though the total level of sales achieved has dropped during
the reorganization, the Company has detected no significant erosion of its
current customer base, and no major customers have been lost during Fy 2000.
YARC's OEM customers fall into two groups, those within the printing industry,
and those outside of it. At this time the Company has three significant OEM's,
Roland DG of Japan, who ships a YARC Macintosh Software RIP under the name
"RY-RIP" to the Japanese marketplace, Honeywell Commercial Aviation Systems, who
uses the Company's product as a component of Commercial Flight Simulators, and
DCA, Inc., a supplier of multi-media infrastructure including the glass master
disks used in Digital Video Disk (DVD) manufacture.
Although the revenue derived from the contract with Roland DG is quite small,
management believes the continuing sales of YARC's software product by Roland DG
demonstrates both the
<PAGE> 20
excellence of our printing industry technologies, and more particularly our
ability to address the export marketplace.
All income from the Company's OEM's is intermittent, orders are placed with
little or no notice, and no assurance can be given that any future orders will
be forthcoming from any of these customers. Approximately 73% of YARC's revenues
in Fy 2000, and approximately 52% in Fy 1999, were derived from these three OEM
customers.
All YARC's OEM customers have historically paid promptly, and have 30 day
payment terms. The Accounts Receivable balance of $65,158 outstanding at Jan 31,
2000, was primarily due to one invoice from an OEM customer, which was
subsequently paid following Fy, January 31, 2000, and within terms.
The two most significant printing industry OEM's lost by YARC during its history
are Dai Nippon Screen, which ceased ordering product in 1997, and Linotype AG,
who last bought product in 1991.
YARC's Internet and LINUX Products
Sales of YARC's LINUX Internet Print Servers have yet to become a significant
proportion of revenues. To date, only a handful of YARC's LINUX servers have
been connected to the Internet, the majority have been connected to Appletalk
and Windows based networks. Management believes that the printing industry, as a
whole, has yet to accept Internet technologies, and that the general
availability of low-cost Broadband data distribution will be a necessary
precursor to the generation of significant revenues from the sale of Internet
Print Servers (the significance of Broadband distribution is discussed in more
detail in Item 1).
The majority of YARC's current end-user sales still come from conventional
sources, including YARC's Internet presence, but only a minority of those sales
are placed through YARC's Internet based "On-Line Store". Management believes
this is a reflection of the sophistication of the RIP products that the Company
is selling, and the high level of product support demanded by the customer base.
Sales through the On-Line Store are not expected to increase until the
expenditures on advertising and sales promotion are increased, which will not
occur until when and if the Company secures additional funding.
Known Trends Affecting Liquidity
The main factors affecting the Company's ongoing liquidity are a lack of working
capital, declining sales, and restrictions on the use of the credit line that
was made available for mergers and acquisitions. The Company was unprofitable
during the fiscal years ending in 1999 and 2000 and does not expect to return to
a profitable level in Fy 2001. There can be no assurance that the Company will
be profitable in the future.
The Company believes that falling sales cannot be attributed to any market
saturation, or to any pressing need to expend Research and Development funds on
producing new products. The Company believes the current product range, provided
it is continually enhanced in line with
<PAGE> 21
prevailing industry requirements, is capable of sustaining a much higher level
of sales than was achieved during Fy 2000. The Company believes that the fall in
sales has been due to the reduced amount being spent on Sales and Marketing due
to the implementation of the restructuring plan (see `Overview' above). During
Fy 2000 the amount spent by the Company on on Advertising, Trade Show Exhibits,
and Travel, was reduced to a bare minimum, so as to more effectively concentrate
the available capital resources, as well as management's attention, on enhancing
OEM relationships and nurturing symbiotic Merger and Acquisition prospects.
Sources of Liquidity
Internal Sources
Loans from Officers of the Company totalled $518,699 at January 31, 2000 (see
Item 12 below). Cash flow has also been generated from the exercise of stock
options by the same Officers. Although it is expected that the exercise of
options is likely to continue during Fy 2001, no assurances can be given that
internal sources of liquidity will continue to make a significant contribution
to the Company's liquidity.
Sales of RIP products are expected to remain slow until when and if the Company
commits to increasing its advertising and promotional expenditures.
External Sources:
During 1997 and 1998 the Company secured $1,000,000 of capital in an offering of
its common stock to accredited investors (see Item 5 above). The company is
continuing to negotiate Private Placements of its common stock during the
current fiscal year, but no assurances can be given that any funds from private
placements will be available, or will be on terms favorable to the Corporation.
The Company has also begun to explore the possibility of a Public Offering of
its common stock during Fy 2000, but no assurances can be given that any funds
from public sources will be available, or will be on terms favorable to the
Corporation.
Credit Enhancement for Mergers and Acquisitions
On December 5, 1999, the Company announced that it had secured a $10,000,000
Standby Letter of Credit to help finance future mergers and acquisitions. On
December 15, 1999, the Company announced that an additional $25,000,000 had been
pledged by the same source for specific mergers and acquisitions, to be made
available on a case by case basis. On February 4th, 2000, the Company had to
withdraw from a merger with Quik Pix Inc., in part because its financial backers
refused to allow any expenditure of funds for that specific acquisition.
Additionally, the Company has experienced difficulty locating a bank that will
initiate a loan using the $10,000,000 SLC as credit enhancement, and no
assurances can be given that a suitable Bank will be found. Additionally, the
Letter of Credit may only be used to secure funds to be used for Merger and
Acquisition activities, and not for general business activities. YARC has been
seeking to renegotiate the terms of this credit enhancement, but no assurance
can be given that such renegotiations would result in terms satisfactory to the
Company.
<PAGE> 22
Conversion of Debt
In December 1999 and January 2000, the Company's balance sheet was materially
improved by the conversion of $759,732 in debt and notes, in exchange for
1,897,256 shares of its common stock. During Fy 2000, the Company also issued
300,000 shares of restricted common stock in exchange for services rendered. The
Company will continue to enhance liquidity in this manner whenever such
transactions are in the best interests of the Company and its shareholders.
As a result of this conversion the Company's primary creditors are its
employees, past and present, and the Internal Revenue Service. The Company owes
withholding taxes dating back to 1996. The Company has managed to pay back some
of the arrears, but $357,824, including interest and penalties, still remains on
the books. In March of 2000, several officers of the Corporation executed
waivers of the Statute of Limitations with respect to the money owed to the
Service. As a result, management expects that a revised repayment plan can be
negotiated, but no assurance can be given that the negotiations will be
successful.
Additionally, Management is seeking to persuade past and present employees to
renegotiate the terms for repayment of the unpaid salary. Of the stock options
granted to the Company's staff during Fy 1999, 955,000 of the underlying shares
may only be exercised in exchange for reduction of debt, such as unpaid salary,
carried on the books of the Company in the name of the optionee.
Material Commitments for Capital Expenditure
During its history YARC has spent relatively little on Capital Equipment.
Although some of the Company's computers are aging, the cost of their
replacement is not expected to be a material drain on cashflow.
Material Changes in Financial Statement Line Items
Total revenues for Fy January 31, 2000, were $478,546, representing a 38%
decrease from revenues of $766,562 for the prior Fy January 31, 1999. The
Company sustained a net loss of $506,437 during Fy 2000, down from a net loss of
$1,442,037 in Fy 1999. Reduced revenues primarily result from the factors
discussed above under "Known trends affecting liquidity".
Operating expenses decreased to $867,562 in Fy 2000, from $1,875,184 during Fy
1999, with most of the decrease resulting from reduced expenditures on salaries
and other overheads.
The Company's Gross Margin in Fy 2000 was 75%, up from 57% in Fy 1999. The
increased margin in fiscal 2000 over 1999 was primarily due to the increased
proportion of OEM sales during Fy 2000, and is a one-time phenomenon not
expected to be repeated during the current fiscal year. Historically, the Gross
Margin was 69% in Fy 1998 and 65% in Fy 1997, but the change of the product mix
towards a lower proportion of software based products, and a higher proportion
of hardware based products, is expected to reduce future Gross Margins below
these historical levels.
Selling, General and Administrative expense decreased from $1,602,322 in Fy 1999
to $727,632 in Fy 2000. This was due primarily to the reduction in salaries, and
associated costs, which
<PAGE> 23
resulted from the restructuring, and lower rent payments following the Company's
move to Camarillo. It is expected that these expenses can be reduced only a
little further, in the short term, without unduly affecting the restructuring
objectives. As a result of these economies, advertising and marketing of YARC's
existing product range has been reduced to a bare minimum. This has resulted in
reduced sales of existing products, but has not, to date, noticeably affected
prospective OEM relationships or the goodwill of the Company's current customer
base. The consummation of potential OEM relationships, and the ultimate growth
of product sales, will be dependent on YARC maintaining its technological
leadership while it simultaneously achieves growth from the changes in its
strategic focus.
Limited Working Capital, Financial Instability
As of January 31, 2000, the Company had a negative stockholder's equity of
$1,531,083, an accumulated deficit of $5,993,468, and a working capital deficit
of $23,944. Various factors affecting the Company's operations raise doubt as to
the Company's ability to continue as a going concern. There can be no assurance
that the Company will be able to continue as a going concern or achieve material
revenues or profitable operations. (see "Sources of Liquidity" above)
Research and Development
YARC spent $139,930 on Research and Development during Fy 2000, down from
$272,862 in Fy 1999. This expenditure has primarily been on enhancements and
improvements to YARC's RIP software products, and enhancement of our LINUX
server expertise. Management believes that although this expenditure is
relatively high, 29% of Fy 2000 revenues, it is essential to implement the
strategic objectives of the restructuring.
Inventory
Inventory in Fy 2000 was $173,472, down from $194,375 in Fy 1999 On January 31,
1999, there was a writedown of inventory made obsolete by YARC's changing
product focus. Additionally management has tried to reduce inventory levels in
line with the reduced levels of product shipments. At this point there is no
significant aging of the inventory and further writedowns are not expected
during Fy 2001. The Company has adequate inventory to maintain its current level
of shipments, but additional financing of accounts receivable or inventory will
be necessary to keep pace with any increase in the level of sales.
Elements of Income or Loss not resulting from Continuing Operations
In March of 1999, as part of its restructuring plan, the Company ceased
providing operating capital to its wholly owned UK subsidiary, YARC Systems
Limited. This subsidiary had been established in 1996 to provide Sales and
Support for European customers, but had failed to achieve profitability. In Fy
1999 the Company took a charge of $281,290 in writing off all receivables and
advances due from this subsidiary. The Company does not anticipate any
additional charges relating to this subsidiary, but no assurance can be given
that the Company may not be held liable for some of its unsatisfied debts, which
total around 30,000 pounds. Subsequent to the cessation of operations, European
customers have been supported from our Head Office, primarily using e-mail and
other Internet based services, such as FTP. YARC Systems Limited is still a UK
Company in good standing, and could be restored to trading if working capital
was available, and if suitable arrangements were made with its creditors.
<PAGE> 24
Seasonal Aspects
The company does not receive scheduled orders from its customer base. The orders
are intermittent, and the Company cannot rely upon orders being received during
any particular period of its financial year. However, the flow of orders does
not follow any obvious pattern that could be described as "seasonal".
Property Lease
The lease on the Company's corporate headquarters terminates on December 31,
2000. The Company intends to negotiate an extension to the existing lease if the
Company's merger and acquisition activities have not dictated a move to
alternative premises by qtr 3, 2000. Should a transfer of 25% or more of the
voting control of the Company occur, this would constitute an assignment
requiring the Lessor's consent. There can be no assurance that such consent
would be forthcoming.
Financial Encumbrances
From time to time YARC's accounts receivable and inventory have been pledged as
security for financings, loans, and leases. As of April 28th, 2000, all of the
Company's commitments under the Uniform Commercial Code's on the public record
have been discharged. Should YARC draw down against its Standby Letter of Credit
(see later), or obtain additional financing from other sources, it can be
expected that its accounts receivable and inventory would again become
encumbered.
Dependence on Key Customers
One domestic customer accounted for $242,000 or 51% and $366,700 or 48% of the
year ended January 31, 2000 and 1999 sales respectively. One other domestic
customer accounted for $81,400 or 17% of the year ended January 31, 2000. No
assurances can be given that either of these customers will continue to purchase
product from the Company, and the loss of their business could have a material
adverse effect on the Company's operating results.
Dependence on Key Personnel
The Company is largely dependent upon the skills and efforts of its senior
management and other officers and key employees. The Company believes that its
future success will depend in large part upon its ability to attract and retain
highly personnel, many of whom are in great demand. Competition for such
personnel recently has increased significantly. The loss of key personnel or the
inability to hire or retain qualified personnel could have a material adverse
effect on the Company's operating results.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed as a part of this Form 10-KSB:
<TABLE>
<CAPTION>
Financial Statements: Page
- - --------------------- ----
<S> <C>
Report of Independent Auditor F-2
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
Balance Sheets at January 31, 2000 and 1999 (audited) F-3
Statements of Operations for fiscal years ended
January 31, 1999 and 2000 (audited) F-4
Statement of Stockholders' Equity for fiscal years
ended January 31, 1999 and 2000 (audited) F-5
Statements of Cash Flows for the fiscal years
ended January 31, 1999 and 2000 (audited) F-6
Notes to Financial Statements F-7
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the last two fiscal years there have been no changes in or disagreements
with the Company's principal independent accountant on accounting or financial
disclosure. No principal independent accountant or subsidiary's independent
accountant on whom the principal accountant has expressed reliance has resigned
or been dismissed.
<PAGE> 26
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements: PAGE
----
<S> <C>
Report of Independent Auditor F-2
Balance Sheets at January 31, 2000 and 1999 (audited) F-3
Statements of Operations for fiscal years ended
January 31, 1999 and 2000 (audited) F-4
Statement of Stockholders' Equity for fiscal
years ended January 31, 1999 and 2000 (audited) F-5
Statements of Cash Flows for the fiscal years ended
January 31, 1999 and 2000 (audited) F-6
Notes to Financial Statements F-7
</TABLE>
<PAGE> 27
YARC SYSTEMS CORPORATION, INC.
FINANCIAL STATEMENT
JANUARY 31, 2000 AND 1999
<PAGE> 28
[BARRY GLASSER & COMPANY LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Yarc Systems Corporation
Camarillo, California
We have audited the balance sheets of Yarc Systems Corporation as of January 31,
2000 and 1999 and the related statements of operations, shareholders' equity,
and cash flows for each of the two years in the period ended January 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Yarc Systems Corporation as of
January 31, 2000 and 1999, and the results of it's operations and cash flows for
each of the two years in the period ended January 31, 2000 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Note 2 to the financial statements
describes various factors that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BARRY GLASSER & COMPANY
Agoura Hills, California
April 6, 2000
<PAGE> 29
YARC SYSTEMS CORPORATION
BALANCE SHEET
JANUARY 31,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 1,746 $ 4,330
Accounts Receivable, Less Allowance for
Doubtful Accounts of $1,758 (2000) and
$0 (1999) (Note 3) 65,158 16,282
Inventories (Note 4) 173,472 194,375
----------- -----------
Total Current Assets 240,376 214,987
Property and Equipment at Cost, Less Accumulated
Depreciation of $419,235 (2000) and $388,186 (1999)
(Note 5) 46,877 78,951
Deposit 0 3,600
----------- -----------
Total Assets $ 287,253 $ 297,538
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Bank Overdraft $ 25,690 $ 0
Accounts Payable 396,895 643,785
Accrued Payroll and Payroll Taxes (Note 8) 645,573 697,472
Dividend Payable (Note 15) 170,265 144,402
Loans From Stockholders 132,297 0
Bridge Loan (Note 7) 35,109 544,161
Due to Stockholder (Note 10) 408,249 174,219
Current Portion of Obligation Under
Capital Leases (Note 9) 1,480 8,270
----------- -----------
Total Current Liabilities 1,815,558 2,212,309
----------- -----------
Obligation Under Capital Leases, Less Current Portion
(Note 9) 2,778 4,258
----------- -----------
Stockholder's Equity (Note 7, 13 and 15)
Preferred Stock Series A, $1 Par Value 10% Cumulative
Voting Shares, Authorized 15,000,000 Shares: Issued
and Outstanding 258,638 Shares 258,638 258,638
Preferred Stock Series B, No Par Value, Non-Voting
Shares; Issued and Outstanding 68,334 Shares 42,667 42,667
Common Stock, No Par Value, Authorized 25,000,000
Shares, 19,046,871 Shares and 16,293,809 Issued and
Outstanding at January 31, 2000 and 1999, respectively 4,161,080 3,206,348
Retained Earnings (Deficit) (5,993,468) (5,426,682)
----------- -----------
Total Stockholder's Equity (Deficit) (1,531,083) (1,919,029)
----------- -----------
Total Liabilities and Stockholders Equity $ 287,253 $ 297,538
=========== ===========
</TABLE>
See Accompanying Notes to These Financial Statements.
<PAGE> 30
YARC SYSTEMS CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenue, Net of Returns and Allowances $ 478,546 $ 766,562
Cost of Sales (117,421) (333,415)
------------ ------------
Gross Profit 361,125 433,147
------------ ------------
Operating Expenses
Selling Expenses 26,701 204,213
Research and Development 139,930 272,862
General and Administrative Expenses 700,931 1,398,109
------------ ------------
Total Operating Expenses 867,562 1,875,184
------------ ------------
Operating Income (Loss) (506,437) (1,442,037)
Interest Expense (33,686) (58,009)
------------ ------------
Income (Loss) Before Extraordinary Loss (540,123) (1,500,046)
Write-off of Investment and Advances
To Unconsolidated Subsidiary (Note 6) 0 (281,290)
------------ ------------
Income (Loss) Before Income Taxes (540,123) (1,781,336)
Provision (Benefit) for Income Taxes (Note 12) 800 800
------------ ------------
Net Income (Loss) $ (540,923) $ (1,782,136)
============ ============
(Loss) per Common Share
Basic $ (.03) $ (.12)
============ ============
Diluted $ (.03) $ (.12)
============ ============
Weighted Average Common Shares 16,785,144 15,092,688
============ ============
Weighted Average Common Shares - Assuming Dilution 16,785,144 15,092,688
============ ============
</TABLE>
See Accompanying Notes to These Financial Statements.
<PAGE> 31
YARC SYSTEMS CORPORATION, INC.
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
Series A Series B Common Stock
-------------------------- -------------------------- --------------------------
Shares Issued Shares Issued Shares Issued
& Outstanding Amount & Outstanding Amount & Outstanding Amount
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1998 258,638 $ 258,638 68,334 $ 42,667 13,853,370 $ 2,321,898
Net Loss
Issuance of Stock Under Conversion From
Bridge Loan at $.50 Per Share 240,000 120,000
Sale of Common Stock at $.50 Per Share 785,600 392,800
Exercise of Employee Stock Options at:
$.20 Per Share 290,000 58,000
$.31 Per Share 429,839 133,250
$.44 Per Share 410,000 180,400
Issuance of Shares to Previous Purchases of
Stock Who Paid $1 Per Share 285,000 0
Dividend - Preferred Stock at $.10 Per Share
Balance at January 31, 1999 258,638 $ 258,638 68,334 $ 42,667 16,293,809 $ 3,206,348
Net Loss
Exercise of Employee Stock Options at:
$.20 Per Share 530,000 106,000
$.31 Per Share 25,806 8,000
Issuance of Stock Under Conversion From
Loan at:
$.10 Per Share 325,000 32,500
$.20 Per Share 220,000 44,000
$.25 Per Share 48,000 12,000
$.50 Per Share 745,940 372,970
$.55 Per Share 50,000 27,500
$1.00 Per Share 28,208 28,208
Issuance of Stock in Exchange for Services 300,000 81,000
Issuance of Stock in Payment of
Outstanding Invoices 480,108 242,554
Dividends-Preferred Stock at $.10 Per Share
Balance at January 31, 2000 258,638 $ 258,638 68,334 $ 42,667 19,046,871 $ 4,161,080
</TABLE>
<TABLE>
<CAPTION>
Retained
Treasury Earnings
Stock (Deficit) Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 31, 1998 0 ($3,618,683) ($ 995,480)
Net Loss ($1,782,136) ($1,782,136)
Issuance of Stock Under Conversion From
Bridge Loan at $.50 Per Share 120,000
Sale of Common Stock at $.50 Per Share 392,800
Exercise of Employee Stock Options at:
$.20 Per Share 58,000
$.31 Per Share 133,250
$.44 Per Share 180,400
Issuance of Shares to Previous Purchases of
Stock Who Paid $1 Per Share 0
Dividend - Preferred Stock at $.10 Per Share ($ 25,863) ($ 25,863)
Balance at January 31, 1999 0 ($5,426,682) ($1,919,029)
Net Loss ($ 540,923) ($ 540,923)
Exercise of Employee Stock Options at:
$.20 Per Share $ 106,000
$.31 Per Share $ 8,000
Issuance of Stock Under Conversion From
Loan at:
$.10 Per Share $ 32,500
$.20 Per Share $ 44,000
$.25 Per Share $ 12,000
$.50 Per Share $ 372,970
$.55 Per Share $ 27,500
$1.00 Per Share $ 28,208
Issuance of Stock in Exchange for Services $ 81,000
Issuance of Stock in Payment of
Outstanding Invoices $ 242,554
Dividends-Preferred Stock at $.10 Per Share ($ 25,863) ($ 25,863)
Balance at January 31, 2000 0 ($5,993,468) ($1,531,083)
</TABLE>
See Accompanying Notes to These Financial Statements.
<PAGE> 32
YARC SYSTEMS CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operating Activities:
Net Income (Loss) $ (540,923) $(1,782,136)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by (Used in) Operating
Activities:
Write-off of Contract and Licenses 0 25,000
Write-off of Investment and Advances
to Subsidiary 0 281,290
Sales to Unconsolidated Subsidiary Not Paid For 0 (67,099)
Stock Issued for Payment of Services 81,000 0
Allowance for Doubtful Accounts 1,758 3,048
Depreciation and Amortization 33,549 44,538
Accrued Interest on Bridge Loans 24,360 32,432
Decrease (Increase) in Accounts Receivable (50,634) 60,937
Decrease (Increase) in Inventories 20,903 121,512
Decrease (Increase) in Deposits 3,600 6,126
(Decrease) Increase in Accounts Payable (4,336) 149,189
(Decrease) Increase in Accrued Expenses (51,899) 182,528
----------- -----------
Net Cash (Used in) Operating Activities (482,622) (942,635)
----------- -----------
Investing Activities:
Advances to Unconsolidated Subsidiary 0 (40,045)
Acquisition of Property and Equipment (1,475) (7,478)
----------- -----------
Net Cash (Used in) Provided by Investing Activities (1,475) (47,523)
----------- -----------
Financing Activities:
Unsecured Loans From Stockholders 119,000 0
Proceeds From Bridge Loans 0 246,420
Net Advances (Payment) From Stockholder 234,030 19,504
Net Borrowing (Payment) Under Capital
Lease Obligation (8,270) (33,126)
Proceeds From Sale of Stock 0 392,800
Repayment of Bridge Loans (2,937) (15,019)
Proceeds From Exercise of Employee Stock Options 114,000 371,650
----------- -----------
Net Cash Provided (Used) by Financing Activities 455,823 982,229
----------- -----------
Increase (Decrease) in Cash (28,274) (7,929)
Cash at Beginning of Period 4,330 12,259
----------- -----------
Cash (Overdraft) at End of Period $ (23,944) $ 4,330
=========== ===========
Cash Paid For:
Interest $ 14,952 $ 40,576
=========== ===========
Income Taxes $ 800 $ 800
=========== ===========
Non Cash Conversion of Loans to Capital Stock $ 517,178 $ 120,000
=========== ===========
Non Cash Transaction From Dividend on
Preferred Stock Series A $ 25,863 $ 25,863
=========== ===========
Non Cash Conversion of Accounts Payable to
Common Stock $ 242,554 $ --
=========== ===========
</TABLE>
See Accompanying Notes to These Financial Statements.
<PAGE> 33
YARC SYSTEMS CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION
Yarc Systems Corporation (the Company) was founded in January, 1988 to
develop and market a new method of increasing the power of personal computers
called "Computing Coprocessors". The Company designs and manufactures special
purpose computer engines for major software OEM's. Its key technologies include
a range of proprietary software and hardware packages which allow application
developers to provide their users with more computing power.
In September 1996, the Company formed a subsidiary in the Britain called
YARC Systems limited. The purpose of the subsidiary is to provide local sales
and support within Europe.
YARC Systems Limited has not been consolidated because through January
31, 1998, its operations were minor and the subsidiary did not operate for most
of the 1999 fiscal year.
(See Note 6)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from product sales at the time of
shipment or when a service is performed.
Research and Development Costs
The company follows the guidance provided in FASB-2, Accounting for
Research and Development Costs and FASB-86, Accounting for the Costs of Computer
Software to be Sold, Leased or otherwise Marketed. Accordingly, all costs
related to research and development are expensed until such time that
technological feasibility is established. Once technological feasibility is
established all costs incurred in the production of the product matters are
capitalized.
Cash & Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided via
the straight-line method over the estimated useful lives of the assets,
principally five (5) years.
<PAGE> 34
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
Note 1 - Continued
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Advertising
The Company expenses advertising costs as incurred. During the year
ended January 31, 2000 and 1999, the Company incurred $1,877 and $50,214 in
advertising costs.
Stock-Based Compensation
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation (FAS 123)", which
the Company adopted in fiscal 1997, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
option plans. Under APB 25, if the exercise price of the Company's employee
stock options equals or exceeds the fair value of the underlying stock on the
date of grant, no compensation is recognized. Information regarding the
Company's pro forma disclosure of stock-based compensation pursuant to FAS 123
can be found in Note 13.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" requires the disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. The carrying
value of the financial instruments on the balance sheets are considered
reasonable estimates of the fair value.
Reclassifications
Certain prior year financial statement classifications have been
reclassified to conform with the current year's presentation.
<PAGE> 35
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
Note 1 - Continued
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share ("Basic EPS") excludes dilution
and is computed by dividing net income (loss) available to common shareholders
(the "numerator") by the weighted average number of common shares outstanding
(the "denominator") during the period. Diluted earnings (loss) per common share
("Diluted EPS") is similar to the computation of Basic EPS except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued. The computation of Diluted EPS does not assume exercise or conversion of
securities that would have an anti-dilutive effect on net earnings (loss) per
share.
<TABLE>
<CAPTION>
Earnings (loss) Shares Per-Share
(Numerator) (Denominator) Amount
--------------- ------------- -----------
<S> <C> <C> <C>
January 31, 2000
Net (loss) $ (540,923)
Preferred Dividends (25,863)
-----------
Basic and Diluted EPS $ (566,786) 16,785,144 $ (.03)
=========== =========== ===========
January 31, 1999
Net (loss) $(1,782,136)
Preferred Dividends (25,863)
-----------
Basic and Diluted EPS $(1,807,999) 15,092,688 $ (.12)
=========== =========== ===========
</TABLE>
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. At January 31, 2000, the Company
had a net loss, negative working capital, and a decline in net worth which raise
substantial doubt about its ability to continue as a going concern. The
Company's losses have resulted primarily from an inability to achieve product
sales and contract revenue targets due to insufficient working capital. Yarc's
ability to continue operations will depend on positive cash flow, if any, from
future operations and on the Company's ability to raise additional funds through
equity or debt financing. The Company has cut back and/or discontinued some of
its operations and, if it is unable to raise or obtain needed funding, the
Company may be forced to discontinue operations generally. To date, through
further equity infusion into the Company, primarily in the form of the exercise
of options by employees of the Company, operations have continued. Without
additional funding sufficient to satisfy the creditors of the Company, as well
as providing working capital for the Company, there can be no assurances that
such operations can continue. The Company continues to actively work with
entities capable of providing such funding. Management has continued to
implement its restructuring plan including reductions of personnel,
consolidation of facilities and disposal of subsidiaries. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
<PAGE> 36
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, consists of:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Accounts Receivable, Trade $ 63,542 $ 15,540
Accounts Receivable, Other 3,374 742
-------- --------
66,916 16,282
Less: Allowance for Doubtful Accounts 1,758 --
-------- --------
$ 65,158 $ 16,282
======== ========
</TABLE>
NOTE 4 - INVENTORIES
Inventories at January 31, consists of:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Raw Materials $173,472 $140,116
Work-in-Process 0 51,938
Sales Demonstration 0 2,321
-------- --------
$173,472 $194,375
======== ========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at January 31, consists of:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Machinery and Equipment $ 120,642 $ 120,642
Office Equipment 44,798 44,798
Engineering Equipment 66,609 65,134
Equipment Under Capital Lease 178,971 178,971
Software 55,092 55,092
Leasehold Improvements 0 2,500
--------- ---------
466,112 467,137
Less Accumulated Depreciation (419,235) (388,186)
--------- ---------
$ 46,877 $ 78,951
========= =========
</TABLE>
Depreciation expense charged to operations was $33,549 and $44,538 for
January 31, 2000 and 1999, respectively.
Amortization of equipment under capital lease in the amount of $154,091
and $130,430 for January 31, 2000 and 1999, respectively, is included in
accumulated depreciation.
<PAGE> 37
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 6 - INVESTMENTS AND ADVANCES TO UNCONSOLIDATED SUBSIDIARY CARRIED AT COST
In September 1996, the Company formed a subsidiary in Great Britain by
the name of YARC Systems Limited. The purpose of the subsidiary is to provide
local sales and support within Europe. Through January 31, 1997, the subsidiary
was organizing and had very minor operations.
Following is a summary of the financial position of YARC Systems Limited
as of January 31, 1999:
<TABLE>
<S> <C>
Current Assets $ 13,715
Property, Plant and Equipment (Net) 37,052
---------
Total Assets $ 50,767
=========
Current Liabilities $ 342,324
Noncurrent Liabilities 9,144
---------
351,468
Stockholder's (Deficiency) (300,701)
---------
$ 50,767
=========
</TABLE>
There is no market for the common stock of YARC Systems Limited and,
accordingly, no quoted market price is available.
Sales to Yarc Systems Limited amounted to $ 0 in 2000 and $67,099 in
1999. The Company had not received payment on these sales and the receivable had
been included in the investment and advances to unconsolidated subsidiary. The
Company sold product to Yarc Systems Limited at cost.
During the 1999 fiscal year the subsidiary has ceased operations.
However, the subsidiary is still in good standing and operations could be
recommenced upon approval of the board of directors
NOTE 7 - BRIDGE LOAN/COMMON STOCK
For the year ended January 31, 1997, there were no compensation
arrangements involving common stock.
In June 1996, the Company borrowed $300,000 from 10 borrowers under an
intercreditor agreement. The notes are secured by the accounts receivable and
inventory.
The notes draw interest at 10% per annum. The principal balance plus the
accrued interest was scheduled to be paid in 12 equal installments beginning
June, 1997. The Company has partially repaid one of the notes. The Company has
been accruing the interest on these notes. During the year ended January 31,
1998, the Company received $40,000 as an additional bridge loan; $15,000 of
which was converted into 15,000 shares of common stock. During the years ended
January 31, 1999 and 2000, the Company converted $120,000 and $200,000
respectively to common stock at $.50 per share. Thus at January 31, 2000, all of
the outstanding bridge loan obligation had been satisfied.
<PAGE> 38
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 8 - ACCRUED PAYROLL AND PAYROLL TAXES
Included in accrued payroll and payroll taxes at January 31, 1997 was
$210,000 in back payroll taxes. This sum had increased to approximately $420,000
by January 31, 1998. The company had negotiated with the taxing authorities a
payment plan to pay the outstanding obligation. The Company has not fulfilled
its obligations under the negotiated plan but has been in renegotiations with
the tax authorities.
NOTE 9 - OBLIGATION UNDER CAPITAL LEASES
The Company leases various equipment under capital leases expiring in
various years through 2003. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. Minimum future lease payments under capital leases as
of January 31, 2000 for each of the future years in the aggregate are:
<TABLE>
<S> <C>
Year Ended Jan 31,
2001 $1,480
2002 1,618
2003 1,160
------
4,258
Less: Current Portion 1,480
------
Long-Term Portion $2,778
======
</TABLE>
Interest rates on capitalized leases vary from 9% to 23% and are imputed
based on the lower of the Company's incremental borrowing rate at the inception
of each lease or the lessor's implicit rate of return.
NOTE 10 - DUE TO SHAREHOLDER
Due to shareholder consists principally of business expenses paid for by
the Company's president and not reimbursed by the Company. All of the amounts
are payable upon demand. The officer shareholder has agreed not to demand
payment until at least February, 2001.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company was leasing its facilities under a five year lease, which
was due to expire on January 14, 2000.
During the year ended January 31, 1999, the landlord requested that the
Company vacate the facilities. Since the Company was not fully utilizing the
space, the Company and the landlord mutually rescinded the lease effective
March, 1999. In April, 1999, the Company moved into a new facility. The new
lease expires on December 31, 2000 and requires monthly rent payments of $3,130.
Additionally, the Company is required to maintain a $ 1,000,000
liability insurance policy and replacement cost fire and extended coverage
insurance.
Rent expense under operating leases was $41,691 and $159,043 for the
year ended January 31, 2000 and 1999 respectively.
<PAGE> 39
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 12 - INCOME TAXES
At January 31, 2000, the Company had approximately $5,089,000 and
$2,290,000 of net operating loss carryforwards for federal and state income tax
purposes respectively. The carryforwards expire through 2019.
The components of the provision (benefit) for income taxes at January
31, are as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Current
Federal $ -- $ --
State 800 800
----------- -----------
$ 800 $ 800
=========== ===========
Deferred tax asset consist of the following:
Net Operating Loss Carryforwards $ 1,912,000 $ 1,728,000
Valuation Allowance - Net Operating Losses (1,912,000) (1,728,000)
----------- -----------
Net Deferred Tax Asset $ 0 $ 0
=========== ===========
</TABLE>
There were no deferred tax liabilities at January 31, 2000 or 1999. The
reconciliation of federal income taxes computed at the statutory rate to the
income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
Year Ending January 31,
2000 1999
--------- ---------
<S> <C> <C>
Income Tax Benefit at Statutory Rate $(184,000) $(660,000)
Increase in Valuation Allowance 184,000 660,000
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
NOTE 13 - COMMON STOCK/PURCHASE PLAN
In August 1992, the Board of Directors approved an employee stock
purchase plan. The Board directed that a maximum of 2,000,000 shares be offered
to the employees. This was increased to 8,000,000 in 1995. The Board has the
authority to offer key employees the option of any number of shares up to the
plan maximum. As of January 31, 2000, there were 5,955,000 shares remaining
under this plan.
<PAGE> 40
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
Note 13 - Continued
The following is a summary of the stock option activity for the years
ended January 31, 1999 and 2000:
<TABLE>
<CAPTION>
Underlying
Price Per Share Common Shares
--------------- -------------
<S> <C> <C>
January 31, 1999
Granted $0.20 - $0.44 3,045,000
Exercised $0.20 - $0.44 1,265,000
Canceled $0.20 - $0.44 465,000
January 31, 2000
Granted $0.20 1,650,000
Exercised $0.20 640,000
Canceled $0.00 0
---------
Exercisable at January 31, 2000 2,324,355
=========
</TABLE>
Accounting for Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for its stock option plans. The Company
has opted under Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") to disclose its stock-based
compensation with no financial effect. The pro forma effects of applying SFAS
123 in this initial phase-in period are not necessarily representative of the
effects on reported net income or loss for future years. Had compensation
expense for the Company's stock option plans been determined based upon the fair
value at the grant date for awards under these plans consistent with the
methodology prescribed under SFAS 123, the Company's pro forma net income (loss)
and net income (loss) per share would have been the same due to the high
volatility of the Company's stock prices which yields a fair market value below
the option price at the date of grant.
The fair value of the options granted during the fiscal years ended
January 31, 1999 and 2000 is estimated on the date of grant using the
Black-Scholes option pricing model. The fair values and assumptions used in
calculating the fair values were as follows for the year ended:
<TABLE>
<CAPTION>
January 31, 1999 January 31, 2000
---------------------------------- ----------------
07/24/98 08/20/98 01/07/99 12/02/99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fair Value of Options Granted $ 0.42 $ 0.31 $ 0.20 $ 0.19
Risk Free Interest Rate 6% 6% 6% 6%
Expected Life (Years) 3 3 3 3
Expected Volatility 209% 190% 84% 223%
</TABLE>
<PAGE> 41
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 14 - LITIGATION
In the fourth quarter of 1993, Yarc filed a suit for libel against an
individual resident of Denmark, Mr. Flemming Stanley and his Danish company in
formation, "Stantech." In December 1993, Yarc won a judgment in the Superior
Court of California against the individual and his business in the amount of
$843,000. This judgment is currently unsatisfied. Yarc also filed an action for
libel in the Maritime and Commercial Court of Copenhagen against the same
defendants. Thereafter, Stantech filed a cross-complaint against Yarc which
alleged copying infringement under the Danish "Marketing Act" and claimed Yarc's
Linotronic RIP product infringed a Stantech product. In November, 1996 the
Maritime and Commercial Court held that Flemming Stanley had committed libel and
that there was no evidence of infringement as there was no copyrightable
material and imposed a fine against Mr. Stanley. The Maritime and Commercial
Court also imposed a fine in the approximate amount of U.S.$ 112,000 against
Yarc for disturbing Stantech's market under the Danish Marketing Act. If Yarc
establishes a presence in Denmark the fine will have to be paid as the 843,000
unsatisfied judgement can not be enforced in Denmark.
NOTE 15 - DIVIDENDS AND PREFERRED STOCK
The Preferred Stock Series A was issued to the Company's president in
1992 as payment of reimbursements due the president for money advanced on behalf
of the Corporation.
The holders of outstanding Series A Preferred shares shall be entitled
to receive, when and as declared by the Board of Directors of the corporation,
out of any assets at the time legally available dividends at the annual rate of
$ .10 per Series A Preferred Share, and no more, payable in cash quarterly on
the last day of March, June, September, and December to the holders of Series A
Preferred shares of record on a date not more than 60 nor fewer than 10 days
preceding each respective payment date as specified by the Board of Directors
or, if not so specified, as provided by law. Dividends shall accrue on each
Series A Preferred Share form the date of its original issuance and shall accrue
from day to day, whether or not earned or declared. Dividends shall be
cumulative so that if dividends in respect of any previous quarterly dividend
period at that annual rate per share shall not have been paid on or declared and
set apart of all Series A Preferred shares at the time outstanding, the
deficiency shall be fully paid on or declared and set apart for those shares
before the Board of Directors of the corporation declares or pays any dividend
to holders of Common shares.
At present, the dividends have not been declared by the Board of
Directors but it will be cumulative under dividend payable.
Dividend payable at January 31, 2000 and 1999 consist of:
<TABLE>
<S> <C>
Balance at January 31, 1998 $118,539
Dividend - for the year January 31, 1999 25,863
--------
Balance at January 31, 1999 144,402
Dividend - for the year January 31, 2000 25,863
--------
Balance at January 31, 2000 $170,265
========
</TABLE>
<PAGE> 42
YARC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
Note 15 Continued
All of the outstanding Series A Preferred Shares are held by the
president of the Company. The president has agreed to forego payment of the
dividends until such time as the Company has adequate resources.
The Preferred Stock Series B was purchased on behalf of the Company by
the president from a former officer during the period 1993 to 1995, pursuant to
a legal settlement between the Company and a former officer. The Company has
committed to repurchase those shares from the president at its redemption value
of $2 per share when it is able.
NOTE 16 - TRANSACTIONS WITH MAJOR CUSTOMERS
One domestic customer accounted for $242,000 or 51%, $366,700 or 48% of
the year ended January 31, 2000 and 1999 sales respectively. One other domestic
customer accounted for $81,400 or 17% of the year ended January 31, 2000. No
other customers accounted for more than 1% of sales.
<PAGE> 43
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Officers and Directors of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. Trevor G. Marshall 51 Chairman of the Board, Chief Executive Officer
and President
Dr. Karsten Jeppesen 41 Director
Frances E. Marshall 50 Director, Chief Financial Officer, and Secretary
</TABLE>
Dr. Trevor G. Marshall has been Chairman of the Board, and Chief
Executive Officer, since he founded Yarc Systems Corporation, Inc. in 1988. Dr.
Marshall has extensive experience starting and managing companies which
specialize in electronic equipment and related parts. Mr. Marshall is also a
Contributing Editor for BYTE.com. He is widely recognized as an industry expert
on LINUX and Internet computing technology, writing a regular column titled
"Trevor's Linux" In addition to Bachelors and Masters degrees in Engineering
from the University of Adelaide, South Australia, Dr. Marshall holds a Doctorate
in Philosophy from the University of Western Australia.
<PAGE> 44
Dr. Karsten Jeppesen has served YARC as V.P.Engineering from 1993 until
1999, as a Director between 1996 and 1999, and he is again a Director in 2000.
Dr. Jeppesen's extensive entrepreneurial experience began when he founded Dus
A/S (Denmark) in 1980 with Venture funding from the LEGO Corporation. Dus
manufactured UNIX-based computer-aided-instruction systems for schools and
universities. Dr. Jeppesen has been developing RIP technology for the printing
industry since 1983. He was an early contributor to the LINUX organization,
introducing GNU into YARC's product range in 1994 and LINUX in 1995. Dr.
Jeppesen has extensive experience with Multiple CPU computer systems and Array
Processors, most recently using the LINUX operating system to control these
arrays. Dr. Jeppesen received a Doctor of Dental Surgery degree from Aarhus
University in 1985.
Frances E. (Liz) Marshall currently serves the Company as Chief
Financial Officer, Secretary and Director. Ms. Marshall has been with the
Company since it was founded in 1988, filling a number of key management roles,
including those of Production Management and Financial Controller. During 1982
she published a professional paper on Microprocessor Based Inventory Control in
hospital pharmacy. In 1980 Ms. Marshall received her Graduate Diploma in
Pharmacy from Curtin University, in Western Australia. Ms. Marshall is married
to Dr. Trevor Marshall. The officers of the Company serve at the discretion of
the Board. Each director of the Company serves until such director's successor
is elected and qualified or until the director's death, retirement, resignation
or removal.
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and
directors, and persons who own more than ten percent of a registered class of
our equity securities to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish us with
copies of all Section 16(a) forms they file. During the Company's most recent
fiscal year all persons subject to Section 16(a) have complied therewith.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth compensation paid or accrued by the Company to
all executive officers during the fiscal years ended January 31, 1998, 1999 and
2000:
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
(g)
Securities
(d) (f) Underlying
(a) (b) (c) Other Restricted Options/SARs
Name and Position Year Salary ($) Compensation Stock Awards ($) (#)
- - ----------------- ---- ---------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Dr. Trevor Marshall 1999 $ 7,375 0 -- --
CEO, Chairman 1998 $29,500 0 -- --
1997 $54,083 0 -- --
</TABLE>
15
<PAGE> 45
<TABLE>
<S> <C> <C> <C> <C> <C>
Dr. Karsten Jeppesen 1999 -- 0 -- --
V.P. Eng, Director 1998 $42,000 0 -- 430,000
1997 $63,120 0 -- --
Frances E. Marshall 1999 $ 5,625 0 $122,480 300,000
CFO, Director 1998 $24,375 0 $ 30,000 430,000
1997 $39,375 0 -- --
</TABLE>
(1) Pursuant to the Regulations promulgated by the Commission, the table
omits columns reserved for types of compensation not applicable to us.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
(Individual Grants)
<TABLE>
<CAPTION>
(b)
Number of
Securities (c)
Underlying % of Total Options/SARs (e)
(a) Options/SARs Granted to Employees (d) Expiration
Name Granted (#) in Fiscal Year Exercise or Base Price ($/Sh) Date
---- ----------- -------------- ----------------------------- ----------
<S> <C> <C> <C> <C>
Dr. Trevor Marshall -- -- -- --
Dr. Karsten Jeppesen -- -- -- --
Frances E. Marshall 300,000 18.2% $0.20 December 2002
</TABLE>
(1) All options were granted at an Exercise Price which was equal to or
higher than the Fair market Value of the security at the date of grant.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(d) (e)
(b) Number of Securities Value of Unexercised
Shares (c) Underlying Unexercised In-The Money Options/
(a) Acquired on Value Realized Options/SARs at FY-End(#) SARs at FY-End ($)
Name Exercise # $ Exercisable/Unexercisable Exercisable/Unexercisable
---- ---------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dr. Trevor Marshall -- -- -- --/--
Dr. Karsten Jeppesen 135,806 $ 18,566 181,613/0 $294,213/$0
Frances E. Marshall 300,000 $178,633 -- --/--
</TABLE>
16
<PAGE> 46
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of February 11, 2000, there were approximately 19,046,871 shares of the
Company's Common Stock outstanding. The table below sets forth, as of February
11, 2000, the number of shares of the Company's Common Stock beneficially owned
by each of the Company's current officers and directors, the named executive
officers, any other person or group who owned of record or who was known to
beneficially own more than five percent (5%) of the Company's outstanding shares
and the officers and directors as a group. Unless otherwise indicated, the
address for all parties is c/o Yarc Systems Corporation, Inc., 900 Calle Plano,
Suites J & K, Camarillo, California 93012.
<TABLE>
<CAPTION>
NUMBER OF SHARES
TITLE OF NAME AND ADDRESS BENEFICIALLY PERCENT
CLASS OF BENEFICIAL OWNER OWNED OF CLASS
- - ----- ------------------- ----- --------
<S> <C> <C> <C>
Common Dr. Trevor G. Marshall(1) 4,960,000 26.0%
Common Frances E. Marshall(1) 730,000 8.0%
Common Dr. Karsten Jeppesen 962,462 5.1%
Common Officers and Directors as a Group 6,652,462 34.9%
</TABLE>
(1) Dr. Trevor Marshall and M. Frances E. Marshall are husband and
wife.
The table below sets forth, as of February 11, 2000, the number of shares of the
Company's Series A Preferred Stock beneficially owned by each of the Company's
current officers and directors, the named executive officers, any other person
or group who owned of record or who was known to beneficially own more than five
percent (5%) of the Company's outstanding Series A shares and the officers and
directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
TITLE OF NAME AND ADDRESS BENEFICIALLY PERCENT
CLASS OF BENEFICIAL OWNER OWNED OF CLASS
----- ------------------- ----- --------
<S> <C> <C> <C>
Preference A(2) Dr. Trevor G. Marshall 258,638 100%
</TABLE>
The table below sets forth, as of February 11, 2000, the number of shares of the
Company's Series B Preferred Stock beneficially owned by each of the Company's
current officers and directors, the named executive officers, any other person
or group who owned of record or who was known to beneficially own more than five
percent (5%) of the Company's outstanding Series B shares and the officers and
directors as a group.
17
<PAGE> 47
<TABLE>
<CAPTION>
NUMBER OF SHARES
TITLE OF NAME AND ADDRESS BENEFICIALLY PERCENT
CLASS OF BENEFICIAL OWNER OWNED OF CLASS
----- ------------------- ----- --------
<S> <C> <C> <C>
Preference B(3) Dr. Trevor G. Marshall 68,334 100%
</TABLE>
(2) Preference A stock was issued to Dr. Marshall in 1992, to extinguish
a debt on the Corporation's books resulting from reimbursements due
Dr. Marshall for money advanced on behalf of the Corporation.
(3) Preference B stock was purchased on behalf of the Company by Dr.
Marshall from O. Harvey Raider during the period 1993 to 1995,
pursuant to a legal settlement agreement between the company and O.
Raider. The Corporation has committed to repurchase this Preference
B stock from Dr. Marshall when it is able.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since the Company's inception, Dr. Jeppesen and Dr. Marshall were involved in a
series of transactions with the Company in which the amount involved exceeded
$60,000. Such transactions consisted of a series of payments made by Dr.
Marshall and Dr. Jeppesen of business expenses on the Company's behalf. The
outstanding balance of these transactions was $408,249 at January 31, 2000, a
majority of which related to Dr. Marshall. These advances are not evidenced by a
written instrument.
During the past two years, Ms. Marshall has been involved in a series of
transactions with the Company in which the amount involved exceeded $60,000.
Such transactions consisted of a series of loans to the Company which were used
to supplement cash flow. The outstanding balance of these transactions was
approximately $110,450 at January 31, 2000. These loans are not evidenced by a
written instrument, bear interest at 10% per annum, and have no maturity date.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Title of Exhibit
- - -------------- ----------------
<S> <C>
2.1* Articles of Incorporation
2.2* Bylaws
3.1* Certificate of Determination of Preferences of
Series A Preferred Shares
</TABLE>
18
<PAGE> 48
<TABLE>
<S> <C>
3.2* Certificate of Determination of Preferences of
Series B Preferred Shares
3.3* Certificate of Determination of Preferences of
Series C Preferred Shares
6.1* Lease Agreement between CPBC, Ltd. and Yarc
Systems Corporation, Inc., dated September 7,
1999.
6.2* Yarc Systems Corporation, Inc. 1992
Nonstatutory Stock Option Plan
6.3* Amendment No. 1 to Yarc Systems Corporation,
Inc. 1992 Nonstatutory Stock Option Plan
6.4* Letter of Credit
27.1 Financial Data Schedule
10.(a).1 Consent of Auditor from the Company's exhibit to
Form 10-SB, as filed with the Commission on
March 15, 2000.
</TABLE>
* Incorporated by reference to the Company's exhibit to Form 10-SB, as filed
with the Commission on March 15, 2000.
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the fourth quarter of
the fiscal year ended January 31, 2000.
19
<PAGE> 49
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
YARC SYSTEMS CORPORATION, INC.
Date: May 15, 2000 By: /s/ Trevor Marshall
---------------------------------
Dr. Trevor G. Marshall,
Chairman, Chief Operating
Officer, and President
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: May 15, 2000 By: /s/ Trevor Marshall
---------------------------------
Dr. Trevor G. Marshall,
Chairman, Chief Operating Officer
and President
Date: May 15, 2000 By: /s/ Frances E. Marshall
---------------------------------
Frances E. Marshall,
Director, Chief Financial
Officer, and Secretary
Date: May 15, 2000 By: /s/ Karsten Jeppesen
---------------------------------
Dr. Karsten Jeppesen,
Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
The issuer has not furnished any annual reports or proxy statements to its
security holders.
20
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Title of Exhibit Page
- - -------------- ---------------- ----
<S> <C> <C>
2.1* Articles of Incorporation
2.2* Bylaws
3.1* Certificate of Determination of Preferences
of Series A Preferred Shares
3.2* Certificate of Determination of Preferences
of Series B Preferred Shares
3.3* Certificate of Determination of Preferences
of Series C Preferred Shares
6.1* Lease Agreement between CPBC, Ltd. and Yarc
Systems Corporation, Inc., dated September 7, 1999.
6.2* Yarc Systems Corporation, Inc. 1992 Nonstatutory
Stock Option Plan
6.3* Amendment No. 1 to Yarc Systems Corporation, Inc.
1992 Nonstatutory Stock Option Plan
6.4* Letter of Credit
27.1 Financial Data Schedule
10.(a).1 Consent of Auditor from the Company's exhibit to
Form 10-SB, as filed with the Commission on
March 15, 2000.
</TABLE>
* Incorporated by reference to the Company's exhibit to Form 10-SB, as
filed with the Commission on March 15, 2000.
21
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JAN-31-2000 JAN-31-1999
<PERIOD-START> FEB-01-1999 FEB-01-1998
<PERIOD-END> JAN-31-2000 JAN-31-1999
<CASH> 1,746 4,330
<SECURITIES> 0 0
<RECEIVABLES> 66,916 16,282
<ALLOWANCES> 1,758 0
<INVENTORY> 173,472 194,375
<CURRENT-ASSETS> 240,376 214,987
<PP&E> 466,112 467,137
<DEPRECIATION> 419,235 388,186
<TOTAL-ASSETS> 287,253 297,538
<CURRENT-LIABILITIES> 1,815,558 2,212,309
<BONDS> 0 0
0 0
301,305 301,305
<COMMON> 4,161,080 3,206,348
<OTHER-SE> (5,993,468) (5,426,682)
<TOTAL-LIABILITY-AND-EQUITY> 287,253 297,538
<SALES> 478,546 766,562
<TOTAL-REVENUES> 478,546 766,562
<CGS> 117,421 333,415
<TOTAL-COSTS> 867,562 1,875,184
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 33,686 58,009
<INCOME-PRETAX> (540,123) (1,500,046)
<INCOME-TAX> 800 800
<INCOME-CONTINUING> (540,923) (1,500,846)
<DISCONTINUED> 0 (281,290)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (540,923) (1,782,136)
<EPS-BASIC> (.03) (.12)
<EPS-DILUTED> (.03) (.12)
</TABLE>
<PAGE> 1
EXHIBIT 10.(a).1
CONSENT
BY AUDITOR
The undersigned hereby consent to: (i) the inclusion and use of our
opinions with respect to Yarc Systems Corporation, Inc., in the Registration
Statement filed with the Securities and Exchange Commission by Yarc Systems
Corporation, Inc., and (ii) the references to us in the Registration Statement.
Barry Glasser & Company
Date: March 13, 2000 By: /s/ BARRY GLASSER
---------------------------------
Barry Glasser
