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 April 30, 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.
2,050,000 shares of common stock, $.001 par value, (the issuer's only class of
common stock), were outstanding as of June 5, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc. and Subsidiary
Balance Sheet
April 30, July 31,
1998 1997
Unaudited Audited
------------- -------------
ASSETS
Current Assets
Cash $ 43,344 $ 100,796
Investments 6,500 6,500
Accounts receivable 1,175,643 921,338
Inventory 177,727 291,350
Prepaid expenses 16,667 16,667
Deferred income taxes 19,422 19,422
------------ -----------
Current assets 1,439,303 1,356,073
Property and equipment
(net of depreciation) 370,565 401,232
Leasehold improvements
(net of depreciation) 5,796 31,994
Note receivable - officer - 14,202
Deposits 105,351 105,706
Goodwill 9,467 10,853
Other assets - 4,660
------------ ------------
Total assets $1,930,482 $1,924,720
<PAGE
VarTech Systems Inc. and Subsidiary
Balance Sheet
April 30, July 31,
1998 1997
Unaudited Audited
------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 72,873 167,954
Accrued payables 77,816 83,575
Notes payable - IBMCC 659,784 817,262
Notes payable 106,048 136,222
Current maturities - Long-Term debt 47,433 84,313
Income taxes payable 27,000 41,842
------------ -----------
Total current liabilities 990,954 1,331,168
Deferred Income Taxes 5,760 5,760
Long term debt 486,691 162,381
Stockholder loan - 52,774
------------ -----------
Total liabilities 1,483,405 1,552,083
Common stock - $.001 par value
100,000,000 shares authorized
2,050,000 and 1,937,300 shares
issued and outstanding at April 30, 1998
and July 31, 1997 2,050 1,937
Capital in excess of par value 412,472 412,485
Retained earnings 32,555 ( 41,785)
------------ -----------
Total shareholders' equity 447,077 372,637
Total liabilities and shareholders' equity $1,930,482 $1,924,720
------------- -----------
<PAGE>
VarTech Systems Inc. and Subsidiary
Statement of Operations
(Unaudited)
Quarter Ended Nine Months Ended
April 30, April 30,
1998 1997 1998 1997
---------------------- -------------------------
Revenues
Sales $1,980,265 $722,859 $5,003,893 $1,950,820
Cost of sales 1,274,482 462,205 3,253,552 1,108,343
---------- -------- ---------- ----------
Gross profit 705,783 260,654 1,750,341 842,477
Expenses 508,564 186,208 1,649,002 434,835
---------- --------- ---------- -----------
Income before
taxes 197,219 74,446 101,339 407,642
Income taxes 27,000 21,000 27,000 155,000
---------- --------- ---------- -----------
Net income $ 170,219 $ 53,446 $ 74,339 $252,642
Per common share .08 .03 .04 .14
Weighted number
shares outstanding 2,050,000 1,787,300 2,050,000 1,787,300
<PAGE>
VarTech Systems Inc. and Subsidiary
Statement of Cash Flows
(Unaudited)
Quarter Ended Nine Months Ended
April 30, April 30,
1998 1998 1998 1997
----------------- -------------------
Cash flow from operating activities
Net income (loss) $170,219 $ 53,446 $ 74,339 $252,642
Noncash items included in net
income
Depreciation and amortization 25,262 10,000 75,779 20,000
Net changes in:
Accounts receivable
and other assets (346,490) (54,880) (268,711) (353,357)
Inventory 11,018 (10,000) 113,622 (35,000)
Deposits - - - (120,000)
Accounts payable and
accrued expenses ( 33,341) 25,259 (390,515) 216,661
--------- -------- -------- ---------
Net cash provided (used)
by operating activities (173,332) 23,825 (395,486) (19,054)
--------- ------- -------- ---------
Cash flows from investing activities
Sale of property and equipment - - 42,473 -
Purchase of property
and equipment - - (60,000) -
--------- ------- -------- ---------
Net cash used in inveting activities - - (17,527) -
Cash flow from financing activities
Changes in notes payable 147,355 (25,774) 341,359 14,563
Changes in notes receivable - - 14,202 -
--------- ------- -------- ---------
Net cash provided (used) by
financing activities 147,355 (25,774) 355,561 14,563
Net increase (decrease) in cash (25,977) (1,949) (57,452) (4,491)
Cash and equivalents,
beginning of period 69,321 16,141 100,796 18,683
--------- -------- -------- --------
Cash and equivalents,
end of period $ 43,344 $ 14,192 $ 43,344 $ 14,192
--------- -------- --------- --------
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1998
COMPARED TO APRIL 30, 1997
The Company's revenues increased to $1,980,265 in the third quarter of fiscal
1998 as compared to $722,859 in the third quarter of fiscal 1997. This
revenue increase is 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 $1,783,046 or 90% of revenues as compared to $648,413 or 90% in
the same period of 1997. The profit percent before taxes remained constant
for the two periods.
The Company's net income after tax in the third quarter of 1998 was $170,219
as compared to a net income after tax of $53,446 in the same period of fiscal
1997. The increase in net income was a result of the Company's increase in
both sales volume and profit margins on the products sold.
NINE MONTHS ENDED APRIL 30, 1998
COMPARED TO APRIL 30, 1997
The Company's revenues increased by 157% to $5,003,893 for the nine months
ended April 30, 1998 as compared to $1,950,820 for the nine months ended
April 30, 1997. The increase in revenue is attributed to the acquisition of
21st Century Professionals, Inc.
The Company's costs and expenses increased during the period. Costs and
expenses were $4,902,554 or 98% of revenue for the nine months ended
April 30, 1998 as compared to $1,543,178 or 79% for the nine months ended
April 30, 1997.
The Company's after tax income for the nine months ended April 30, 1998 was
$74,339 as compared to after tax income of $252,642 for the same period of
the previous year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit totaling $1,250,000 which it uses for short-term
borrowing to acquire inventory and finance accounts receivable. On April 30,
1998, the outstanding balance on these lines was $1,005,832. The lines of
credit and its current assets of $1,439,303 are deemed sufficient to fund
operations for the next twelve months. As of April 30, 1998, the Company had
$244,168 available under the lines of credit.
<PAGE>
VARTECH SYSTEMS INC AND SUBSIDIARY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
APRIL 30, 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.
<PAGE>
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
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: June 5, 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.
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<PERIOD-END> APR-30-1998
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