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 October 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 filed 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 December 9, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc. and Subsidiary
Balance Sheet
October 31, July 31,
1998 1998
Unaudited Audited
------------- -------------
ASSETS
Current Assets
Cash $ 16,294 $ 51,559
Investments 6,500 6,500
Accounts receivable 883,123 834,016
Inventory 189,221 369,129
Prepaid expenses 5,332 2,480
Deferred income taxes 9,141 9,141
----------- ----------
Total current assets 1,109,611 1,272,825
Property and equipment
(net of depreciation) 371,572 379,195
Leasehold improvements
(net of depreciation) 5,046 5,296
Deposits 114,521 112,521
Goodwill 9,930 10,119
Other assets 1,146,250 1,180,000
----------- ----------
Total assets $2,756,930 $2,959,956
<PAGE>
VarTech Systems Inc. and Subsidiary
Balance Sheet
LIABILITIES AND SHAREHOLDER'S EQUITY
October 31, July 31,
1998 1998
Unaudited Audited
------------- -------------
Current liabilities
Accounts payable - IBMCC 323,919 517,707
Accounts payable 97,424 115,392
Accrued payables 82,883 86,129
Notes payable 476,189 419,842
Current maturities - Long-term debt 49,608 48,508
Income taxes payable - 16,302
Current portion - Non-compete obligation 135,000 135,000
---------- ----------
Total current liabilities 1,165,023 1,338,880
Deferred Income Taxes 20,701 20,701
Deferred Lease Expense 21,275 21,275
Long-term debt 88,234 101,056
Non-compete obligation 1,011,250 1,045,000
---------- ----------
Total liabilities 2,306,483 2,526,912
Common stock - $.001 par value
100,000,000 shares authorized
1,950,000 shares issued and
outstanding at October 31, 1998
and July 31, 1998 1,950 1,950
Capital in excess of par value 425,172 425,172
Retained earnings 23,325 5,922
----------- ----------
Total shareholders' equity 450,447 433,044
Total liabilities and shareholders' equity $2,756,930 $2,959,956
----------- -----------
<PAGE>
VarTech Systems Inc. and Subsidiary
Statement of Operations
(Unaudited)
Quarter Ended
October 31,
1998 1997
----------- ------------
Sales $1,707,621 $1,611,555
Cost of sales 1,219,391 1,185,082
---------- ----------
Gross profit 488,230 426,473
Expenses 470,826 522,712
---------- ----------
Income $ 17,404 $ ( 96,239)
Per common share .01 (.05)
Weighted number shares outstanding 1,950,000 1,950,000
<PAGE>
VarTech Systems Inc. and Subsidiary
Statement of Cash Flows
(Unaudited)
Quarter Ended
October 31,
1998 1997
---------- ----------
Cash flow from operating activities
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities
Net income (loss) $ 17,404 $ (96,239)
Depreciation and amortization 56,439 26,255
Net changes in:
Accounts receivable and other assets (53,959) 13,451
Inventory 179,908 86,595
Accounts payable and accrued expenses (231,305) (298,514)
Non-compete obligation (33,750) -
---------- ----------
Net cash (used in) provided by
operating activities (65,263) (268,452)
---------- ----------
Cash flows from investing activities
Sale of property and equipment - 42,473
Purchase of property and equipment (14,627) -
Cash flow from financing activities
Changes in notes payable 44,625 119,140
Changes in notes receivable - 14,202
---------- ----------
Net increase (decrease) in cash (35,265) (92,637)
Cash and equivalents,
beginning of period 51,559 100,796
---------- ----------
Cash and equivalents,
end of period $ 16,294 $ 8,159
---------- ----------
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1998 COMPARED TO OCTOBER 31, 1997
The Company's revenues increased by 6% to $1,707,621 in the first quarter ended
October 31, 1998 as compared to $1,611,555 in the first quarter of the prior
year.
The Company's costs and expenses were $1,690,217 or 99% of revenues as compared
to $1,707,794 or 106% in the same period ended October 31,1997.
The Company's net profit in the first quarter was $17,404 as compared to a
net loss of $96,239 in the same period last year. The increase in net income
was a result of a direct reduction of operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit totaling $1,175,000 which it uses for short-term
borrowing to acquire inventory and finance the increase in accounts receivable.
On October 31, 1998, the outstanding balance on these lines was $710,108. The
lines of credit and its current assets of $1,095,138 are deemed sufficient to
fund operations for the next twelve months. As of October 31, 1998, the Company
had $464,892 available under the lines of credit.
<PAGE>
VARTECH SYSTEMS INC AND SUBSIDIARY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
OCTOBER 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.
<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: December 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> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1998
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<SECURITIES> 6500
<RECEIVABLES> 883123
<ALLOWANCES> 0
<INVENTORY> 189221
<CURRENT-ASSETS> 1109611
<PP&E> 371572
<DEPRECIATION> 0
<TOTAL-ASSETS> 2756930
<CURRENT-LIABILITIES> 1165023
<BONDS> 0
<COMMON> 1950
0
0
<OTHER-SE> 448497
<TOTAL-LIABILITY-AND-EQUITY> 2756930
<SALES> 1707621
<TOTAL-REVENUES> 1707621
<CGS> 1219391
<TOTAL-COSTS> 1219391
<OTHER-EXPENSES> 449710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21116
<INCOME-PRETAX> 17404
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17404
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
