<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
YARC SYSTEMS CORPORATION, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
CALIFORNIA 77-0185650
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
900 CALLE PLANO, SUITES J & K, CAMARILLO, CALIFORNIA 93012
(Address of principal executive offices) (Zip Code)
</TABLE>
(800) 275-9272
(Issuer's telephone number, including area code)
-------------------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
<PAGE> 2
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The following table sets forth the range of high and low bid quotations
per shares for the Company's Common Stock for the periods indicated as reported
by the OTC Bulletin Board, where the stock trades under the symbol "YARC." 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>
On 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.
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
17
<PAGE> 3
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> 4
YARC SYSTEMS CORPORATION, INC.
FINANCIAL STATEMENT
JANUARY 31, 2000 AND 1999
<PAGE> 5
[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> 6
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 20,000,000
Shares, 18,046,871 Shares and 16,293,809 Issued and
Outstanding at January 31, 2000 and 1999, Respectfully 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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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> 20
PART III
ITEM 1. INDEX TO 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
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
10.(a).1 Consent of Auditor
</TABLE>
- -------
* Previously filed.
<PAGE> 21
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
YARC SYSTEMS CORPORATION, INC.
Dated April 25, 2000 By: /s/ Dr. Trevor G. Marshall
----------------------------------
Dr. Trevor G. Marshall,
Chairman, Chief Operating
Officer and President
Dated April 25, 2000 By: /s/ Frances E. Marshall
----------------------------------
Frances E. Marshall,
Director,Chief Financial Officer,
and Secretary
Dated April 25, 2000 By: /s/ Dr. Karsten Jeppesen
----------------------------------
Dr. Karsten Jeppesen,
Director
<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: April 26, 2000 By: /s/ BARRY GLASSER
---------------------------------
Barry Glasser
<TABLE> <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>
