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, 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.
1,950,000 shares of common stock, $.001 par value, (the issuer's only class of
common stock), were outstanding as of February 26, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc. and Subsidiary
Balance Sheet
January 31, July 31,
1999 1998
Unaudited Audited
------------ ------------
ASSETS
Current Assets
Cash $ 25,645 $ 51,559
Investments 6,500 6,500
Accounts receivable 885,588 834,016
Inventory 177,908 369,129
Prepaid expenses 5,332 2,480
Deferred income taxes 9,141 9,141
----------- -----------
Total current assets 1,110,114 1,272,825
Property and equipment
(net of depreciation) 378,642 379,195
Leasehold improvements
(net of depreciation) 4,971 5,296
Deposits 114,521 112,521
Goodwill 9,742 10,119
Other assets 1,115,446 1,180,000
----------- -----------
Total assets $2,733,436 $2,959,956
<PAGE>
VarTech Systems Inc. and Subsidiary
Balance Sheet
January 31, July 31,
1999 1998
Unaudited Audited
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable - IBMCC 253,655 517,707
Accounts payable 192,640 115,392
Accrued payables 91,417 86,129
Notes payable 443,798 419,842
Current maturities - Long-Term debt 50,732 48,508
Income taxes payable - 16,302
Current portion - Non-compete obligation 135,000 135,000
----------- -----------
Total current liabilities 1,167,242 1,338,880
Deferred Income Taxes 20,701 20,701
Deferred Lease Expense 21,275 21,275
Long term debt 75,122 101,056
Non-compete obligation 977,500 1,045,000
----------- -----------
Total liabilities 2,261,840 2,526,912
Common stock - $.001 par value
100,000,000 shares authorized
1,950,000 shares issued and
outstanding at January 31, 1999
and July 31, 1998 1,950 1,950
Capital in excess of par value 425,172 425,172
Retained earnings 44,474 5,922
----------- -----------
Total shareholders' equity 471,596 433,044
Total liabilities and shareholders' equity $2,733,436 $2,959,956
----------- -----------
<PAGE>
VarTech Systems Inc. and Subsidiary
Statement of Operations
(Unaudited)
Quarter Ended Six Months Ended
January 31, January 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Sales $1,716,186 $1,412,074 $3,423,807 $3,023,629
Cost of sales 814,741 793,988 2,034,131 1,979,070
---------- ---------- ---------- ----------
Gross profit 901,445 618,086 1,389,676 1,044,559
Expenses 882,296 617,726 1,353,122 1,140,438
---------- ---------- ---------- ----------
Income $ 19,149 $ 360 $ 36,554 $ (95,879)
Per common share .01 .00 .02 (.05)
Weighted number shares
outstanding 1,950,000 1,950,000 1,950,000 1,950,000
<PAGE>
VarTech Systems Inc. and Subsidiary
Statement of Cash Flows
(Unaudited)
Quarter Ended Six Months Ended
January 31, January 31,
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) $ 19,149 $ 360 $ 36,554 $ (95,879)
Depreciation and amortization 55,614 24,262 112,052 50,517
Net changes in:
Accounts receivable and
other assets (5,410) 64,327 (59,369) 77,778
Inventory 11,312 16,008 191,220 102,603
Accounts payable and
accrued expenses 33,485 (58,659) (197,820) (357,173)
Non-compete obligation (33,750) - (67,500) -
-------- -------- -------- --------
Net cash (used in) provided by
operating activities 80,400 46,298 15,137 (222,154)
-------- -------- -------- --------
Cash flows from investing activities
Sale of property and equipment - - - 42,473
Purchase of property and
equipment (26,670) (60,000) (41,297) (60,000)
Cash flow from financing activities
Changes in notes payable (44,379) 74,863 246 194,003
Changes in notes receivable - - - 14,202
-------- -------- -------- --------
Net increase (decrease) in cash 9,351 61,161 (25,914) (31,476)
Cash and equivalents,
beginning of period 16,294 8,159 51,559 100,796
-------- -------- -------- --------
Cash and equivalents,
end of period $ 25,645 $ 69,320 $ 25,645 $ 69,320
-------- -------- -------- --------
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1999
COMPARED TO JANUARY 31, 1998
The Company's revenues increased by 22% to $1,716,186 in the second quarter
of fiscal 1999 as compared to $1,412,074 in the second quarter of fiscal 1998.
The Company's costs and expenses in the period before provision for income
taxes totaled $1,697,037 or 99% of revenues as compared to $1,411,714 or 99%
in the same period of 1998.
The Company's profit in the second quarter of 1999 was $19,149 as compared
to a profit of $360 in the same period in fiscal 1998
SIX MONTHS ENDED JANUARY 31, 1999
COMPARED TO JANUARY 31, 1998
The Company's revenues increased by 13% to $3,423,807 for the six months
ended January 31, 1999 as compared to $3,023,629 for the six months ended
January 31, 1998.
The Company's costs and expenses increased during the period. Costs and
expenses were $3,387,253 or 99% of revenue for the six months ended
January 31, 1999 as compared to $3,119,508 or 103% for the six months ended
January 31, 1998.
The Company's profit for the six months ended January 31, 1999 was $36,554
as compared to a loss of $95,879 for the same period of the previous year.
The primary difference in the two periods is the continued elimination of
low margin product lines.
LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit totaling $965,000 which it uses for short-term
borrowing to acquire inventory and finance accounts receivable. On
January 31, 1999, the outstanding balance on these lines was $697,453. The
lines of credit are deemed sufficient to fund operations for the next twelve
months. As of January 31, 1999, the Company had $267,547 available under the
lines of credit.
<PAGE>
VARTECH SYSTEMS INC. AND SUBSIDIARY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JANUARY 31, 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.
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: February 26, 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> 6-MOS
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<PERIOD-END> JAN-31-1999
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<COMMON> 1950
0
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<OTHER-SE> 469646
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