SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter January 31, 1998
Commission file number 33-26798-D
VARTECH SYSTEMS INC.
(exact name of registrant as specified in its' charter)
Colorado
(State or other jurisdiction of incorporation or organization)
84-1104385
(I.R.S. Employer Identification No.)
11301 Industriplex Boulevard, Suite 4
Baton Rouge, Louisiana 70809-4115
(Address of principal executive offices)
Registrant's telephone number, including area code: (504) 298-0300
Indicate by check mark whether the registrant (1) has filled all reports by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days. YES [X] NO[ ]
Indicate the number of shares outstanding of each of the insurer's classes of
common stock, as of the latest practicable date.
1,950,000 shares of common stock, $.001 par value, (the issuer's only class of
common stock), were outstanding as of March 9, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc. and Subsidiary
Balance Sheet
January 31, July 31,
1998 1997
Unaudited Audited
------------- -------------
ASSETS
Current Assets
Cash $ 69,320 $ 100,796
Investments 6,500 6,500
Accounts receivable 829,153 921,338
Inventory 188,746 291,350
Prepaid expenses 16,667 16,667
Deferred income taxes 19,422 19,422
----------- -----------
Current assets 1,129,808 1,356,073
Property and equipme
(net of depreciation) 394,866 401,232
Leasehold improvements
(net of depreciation) 6,296 31,994
Note receivable - officer - 14,202
Deposits 105,351 105,706
Goodwill 9,929 10,853
Other assets - 4,660
---------- ----------
Total assets $1,646,250 $1,924,720
<PAGE>
VarTech Systems Inc. and Subsidiary
Balance Sheet
January 31, July 31,
1998 1997
Unaudited Audited
------------ -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable - IBMCC $523,006 $817,262
Accounts payable 122,888 167,954
Accrued payables 88,143 83,575
Notes payable 223,193 136,222
Current maturities - Long-Term debt 38,446 84,313
Income taxes payable - 41,842
---------- ----------
Total current liabilities 995,676 1,331,168
Deferred Income Taxes 5,760 5,760
Long term debt 368,055 162,381
Stockholder loan - 52,774
----------- ----------
Total liabilities 1,369,491 1,552,083
Common stock - $.001 par value
100,000,000 shares authorized
1,950,000 and 1,937,300 shares
issued and outstanding at
January 31, 1998 and July 31, 1997 1,950 1,937
Capital in excess of par value 412,472 412,485
Retained earnings (137,663) ( 41,785)
----------- -----------
Total shareholders' equity 276,759 372,637
Total liabilities and shareholders'
equity $1,646,250 $1,924,720
----------- -----------
<PAGE>
VarTech Systems Inc. and Subsidiary
Statement of Operations
(Unaudited)
Quarter Ended Six Months Ended
January 31, January 31,
1998 1997 1998 1997
---------- ----------- ----------- -----------
Sales $1,412,074 $825,391 $3,023,629 $1,227,961
Cost of sales 793,988 444,818 1,979,070 646,138
---------- -------- ---------- ----------
Gross profit 618,086 380,573 1,044,559 581,823
Expenses 617,726 129,862 1,140,438 250,624
---------- -------- ---------- ----------
Income before taxes 360 250,711 (95,879) 331,199
Income taxes - 118,000 - 134,000
---------- -------- ---------- ----------
Net income $ 360 $132,711 $ (95,879) $197,199
Per common share .00 .07 (.05) .11
Weighted number shares
outstanding 1,950,000 1,787,300 1,950,000 1,787,300
<PAGE>
VarTech Systems Inc. and Subsidiary
Statement of Cash Flows
(Unaudited)
Quarter Ended Six Months Ended
January 31, January 31,
1998 1997 1998 1997
-------------------------------------------
Cash flow from operating activities
Net income (loss) $ 360 $132,711 $(95,879) $197,199
Noncash items included in
net income
Depreciation and amortization 24,262 5,000 50,517 10,000
Net changes in:
Accounts receivable and
other assets 64,327 (181,923) 77,778 (298,477)
Inventory 16,008 (20,000) 102,603 (25,000)
Deposits - (120,000) - (120,000)
Accounts payable and
accrued expenses (58,659) 143,008 (357,173) 191,402
--------- -------- -------- --------
Net cash provided (used)
by operating activities 46,298 (41,204) (222,154) (44,876)
--------- -------- -------- --------
Cash flows from investing activities
Sale of property and equipment - - 42,473 -
Purchase of property and
equipment (60,000) - (60,000) -
Cash flow from financing activities
Changes in notes payable 74,863 50,402 194,003 42,334
Changes in notes receivable - - 14,202 -
--------- -------- -------- --------
Net increase (decrease) in cash 61,161 9,198 (31,476) (2,542)
Cash and equivalents,
beginning of period 8,159 6,943 100,796 18,683
--------- -------- -------- --------
Cash and equivalents,
end of period $69,320 $ 16,141 $ 69,320 $ 16,141
--------- -------- -------- --------
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1998
COMPARED TO JANUARY 31, 1997
The Company's revenues increased by 71% to $1,412,074 in the second quarter of
fiscal 1998 as compared to $825,391 in the second quarter of fiscal 1997.
The increase in revenue was due to the acquisition of 21st Century
Professionals, Inc. as of June 30, 1997.
The Company's costs and expenses in the period before provision for income taxes
totaled $1,411,714 or 99.75% of revenues as compared to $574,680 or 97% in the
same period of 1997. The primary difference in the two periods was due to the
acquisition of 21st Century Professionals resulting in the elimination of
certain product lines causing downward adjustments in inventory which caused
an increase in cost of sales for the period. Start up costs in new areas and
additional staffing also contributed to the increase in expenses.
The Company's profit in the second quarter of 1998 was $360 as compared to a
profit of $132,711 in the same period in fiscal 1997. The decrease in net
income was a result of the Company's increase in both cost of sales which
resulted in lower profit margins and increase in salary expenses.
SIX MONTHS ENDED JANUARY 31, 1998
COMPARED TO JANUARY 31, 1997
The Company's revenues increased by 246% to $3,023,629 for the six months ended
January 31, 1998 as compared to $1,227,961 for the six months ended January 1,
1997. The increase in revenue is attributed to the acquisition of 21st Century
Professionals, Inc.
The Company's cost and expenses increased during the period. Cost and expenses
were $3,119,508 or 103% of revenue for the six months ended January 31, 1998 as
compared to $912,762 or 95% for the six months ended January 31, 1997. The
difference in the two periods was the increased cost of eliminating certain
product lines and increased staffing.
The Company's loss for the six months ended January 31, 1998 was $95,879 as
compared to a profit of $197,199 for the same period of the previous year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit totaling $475,000 which it uses for short-term
borrowing to acquire inventory and finance accounts receivable. On January
31, 1998, the outstanding balance on these lines was $373,000. The lines of
credit and its current assets of $1,129,808 are deemed sufficient to fund
operations for the next twelve months. As of January 31, 1998, the Company
had $102,000 available under the lines of credit.
VARTECH SYSTEMS INC AND SUBSIDIARY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JANUARY 31, 1998
General
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. The Company believes that the disclosures made herein are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary to a fair statement of the results of
operations for the periods presented have been made.
PART II. OTHER INFORMATION
ITEM 1 THROUGH 3.
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY/HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) NONE
(b) NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VARTECH SYSTEMS INC.
(Registrant)
DATE: March 9, 1998
J. Keith Henderson
President
signed/s/ J. Keith Henderson
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------------ -----------------------------------
27. Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and statement of operations of the Company's Form 10-Q for the year to
date, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK>0000846535
<NAME> VARTECH SYSTEMS INC.
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1998
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<COMMON> 1950
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<OTHER-SE> 274809
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