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, 1999
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: (225) 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.
2,200,000 shares of common stock, $.001 par value, (the issuer's only class of
common stock), were outstanding as of June 9, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc.
Balance Sheet
April 30, July 31,
1999 1998
Unaudited Audited
------------ ------------
ASSETS
Current Assets
Cash $ 60,640 $ 51,559
Investments 6,500 6,500
Accounts receivable 718,210 834,016
Inventory 138,981 369,129
Prepaid expenses 5,333 2,480
Deferred income taxes - 9,141
------------ ------------
Total current assets 929,664 1,272,825
Property and equipment
(net of depreciation) 365,814 379,195
Leasehold improvements
(net of depreciation) 12,932 5,296
Deposits 113,816 112,521
Goodwill - 10,119
Other assets 2,946 1,180,000
------------ ------------
Total assets $1,425,172 $2,959,956
<PAGE>
VarTech Systems Inc.
Balance Sheet
April 30, July 31,
1999 1998
Unaudited Audited
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable 220,722 115,392
Accounts payable - IBMCC - 517,707
Accrued payables 66,539 86,129
Notes payable 333,899 419,842
Current maturities - Long-Term debt 51,882 48,508
Income taxes payable - 16,302
Current portion - Non-compete obligation - 135,000
------------ ------------
Total current liabilities 673,042 1,338,880
Deferred Income Taxes - 20,701
Deferred Lease Benefit 7,010 21,275
Long term debt 61,712 101,056
Non-compete obligation - 1,045,000
------------ ------------
Total liabilities 741,764 2,526,912
Common stock - $.001 par value
100,000,000 shares authorized
2,200,000 and 1,950,000 shares
issued and outstanding at April 30, 1999
and July 31, 1998 2,200 1,950
Capital in excess of par value 672,276 425,172
Retained earnings 8,932 5,922
------------ ------------
Total shareholders' equity 683,408 433,044
Total liabilities and shareholders' equity $1,425,172 $2,959,956
------------ ------------
<PAGE>
VarTech Systems Inc.
Statement of Operations
(Unaudited)
Quarter Ended Nine Months Ended
April 30, April 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Sales $1,011,375 $1,980,265 $4,435,182 $5,003,893
Cost of sales 516,032 1,274,482 2,548,164 3,253,552
---------- ---------- ---------- ----------
Gross profit 495,343 705,783 1,887,018 1,750,341
Expenses 431,047 508,564 1,784,169 1,649,002
---------- ---------- ---------- ----------
Operating income (loss) 64,296 197,219 102,849 101,339
Loss from discontinued
operations (99,839) - (99,839) -
---------- ---------- ---------- ----------
Income (loss)
before taxes (35,543) 197,219 3,010 101,339
Income taxes - 27,000 - 27,000
---------- ---------- ---------- ----------
Net income (loss) $ (35,543) $ 170,219 $ 3,010 $ 74,339
Per common share (.02) .08 .00 .04
Weighted number shares
outstanding 2,200,000 2,050,000 2,200,000 2,050,000
<PAGE>
VarTech Systems Inc.
Statement of Cash Flows
(Unaudited)
Quarter Ended Nine Months Ended
April 30, April 30,
1999 1998 1999 1998
--------- --------- --------- ---------
Cash flow from operating activities
Adjustments to reconcile net
income to net cash (used in)
provided by operating activities
Net income (loss) $(35,543) $170,219 $ 3,010 $ 74,339
Depreciation and amortization 6,825 25,262 118,877 75,779
Loss from discontinued
operations 99,839 - 99,839 -
Net changes in:
Accounts receivable and
other assets 98,364 (346,490) 119,493 (268,711)
Inventory 38,927 11,018 230,148 113,622
Accounts payable and
accrued expenses (285,417) (33,341) (583,235) (390,515)
--------- --------- --------- ---------
Net cash (used in) provided by
operating activities (77,005) (173,332) (11,868) (395,486)
--------- --------- --------- ---------
Cash flow from investing activities
Sale of property and equipment - - - 42,473
Purchase of property and
equipment (15,841) - (107,138) (60,000)
--------- --------- --------- ---------
Net cash (used in) provided by
investing activities (15,841) - (107,138) (17,527)
--------- --------- --------- ---------
Cash flow from financing activities
Changes in notes payable (122,159) 147,355 (121,913) 341,359
Changes in notes receivable - - - 14,202
Proceeds from sale of stock 250,000 - 250,000 -
--------- --------- --------- ---------
Net cash (used in) provided by
financing activities 127,841 147,355 128,087 355,561
--------- --------- --------- ---------
Net increase (decrease) in cash 34,995 (25,977) 9,081 (57,452)
Cash and equivalents,
beginning of period 25,645 69,321 51,559 100,796
--------- --------- --------- ---------
Cash and equivalents,
end of period $ 60,640 $ 43,344 $ 60,640 $ 43,344
--------- --------- --------- ---------
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1999
COMPARED TO APRIL 30, 1998
The Company's revenues decreased to $1,011,375 in the third quarter of fiscal
1999 as compared to $1,980,265 in the third quarter of fiscal 1998. This
revenue decrease is a result of the Company's decision in the second quarter
of fiscal 1999 to discontinue selling hardware in the personal computer
market. Margins continue to erode in that area; therefore a move toward
services and solution integration is underway. It is anticipated that this
conversion will be completed by the first quarter of next year. Further
noted is a significant drop in inventory held from $369,129 at the end of
fiscal 1998 to $138,981 as of April 30, 1999 and a reduction in notes payable
from $937,549 to $333,899 as of April 30, 1999 as the Company continues to
improve its balance sheet.
The Company's costs and expenses in the period before provision for income
taxes totaled $947,079 or 94% of revenues as compared to $1,783,046 or 90%
in the same period of 1998. The reduction is directly related to the
Company's restructuring.
The Company's operating income in the third quarter of 1999 was $64,296 as
compared to operating income after taxes of $170,219 in the same period of
fiscal 1998. The decrease in net income was a result of the Company's
ongoing refocus of its operations. There was also a loss attributed to
discontinued operations of $99,839 resulting in a loss for the quarter
of $35,543.
As of February 1, 1999, the Company discontinued operations in its wholly
owned subsidiary 21st Century/VarTech Inc. causing a loss in the quarter of
$99,839 from discontinued operations. The Company presently operates in the
following three areas: Displays (Industrial monitor sales and
servicing), solution integration, and computer training on the internet
through its direct sales program.
<PAGE>
NINE MONTHS ENDED APRIL 30, 1999
COMPARED TO APRIL 30, 1998
The Company's revenues decreased to $4,435,182 for the nine months ended
April 30, 1999 as compared to $5,003,893 for the nine months ended
April 30, 1998. This revenue decrease is a result of the Company's decision
in the second quarter of fiscal 1999 to discontinue selling hardware in the
personal computer market. Margins continue to erode in that area; therefore
a move toward services and solution integration is underway. It is
anticipated that this conversion will be completed by the first quarter of
next year.
The Company's costs and expenses in the period were $4,332,333 or 98% of
revenue for the nine months ended April 30, 1999 as compared to $4,902,554
or 98% for the nine months ended April 30, 1998.
The Company's after tax income for the nine months ended April 30, 1999 was
$3,010 as compared to after tax income of $74,339 for the same period of the
previous year. The decrease in net income was a result of the loss of
$99,839 attributed to discontinued operations in the fiscal third quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit totaling $350,000 which it uses for
short-term borrowing to finance accounts receivable. On April 30, 1999,
the outstanding balance on these lines was $333,899. The lines of credit
and its current assets of $929,664 are deemed sufficient to fund operations
for the next twelve months. As of April 30, 1999, the Company had $16,101
available under the lines of credit.
<PAGE>
VARTECH SYSTEMS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
APRIL 30, 1999
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. LEGAL PROCEEDINGS
Kim L. D'Albor, former president and John J. Nouss, former employee of 21st
Century/VarTech Inc. filed lawsuits during the quarter alleging additional
monies owed them. 21st Century/VarTech Inc. ceased operations effective
February 1, 1999 and was sold on May 3, 1999. The Company denies any monies
owed either party and believes there will be no material effect on its
operation.
ITEM 2 AND 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 9, 1999
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> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> APR-30-1999
<CASH> 60640
<SECURITIES> 6500
<RECEIVABLES> 718210
<ALLOWANCES> 0
<INVENTORY> 138981
<CURRENT-ASSETS> 929664
<PP&E> 365814
<DEPRECIATION> 0
<TOTAL-ASSETS> 1425172
<CURRENT-LIABILITIES> 673042
<BONDS> 0
<COMMON> 2200
0
0
<OTHER-SE> 681208
<TOTAL-LIABILITY-AND-EQUITY> 1425172
<SALES> 4435182
<TOTAL-REVENUES> 4435182
<CGS> 2548164
<TOTAL-COSTS> 2548164
<OTHER-EXPENSES> 1753683
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30486
<INCOME-PRETAX> 102849
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (99839)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3010
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
