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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2001
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
(Address of principal executive offices)
Registrant's telephone number, including area code: (225) 298-0300
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
None None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[X]
Indicate by check mark whether the Registrant (1)has filed all reports required
to be filed 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) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value of the Registrant's common stock held by
nonaffiliates of the Registrant as of October 1, 2001 was $404,900. On
such date, the average of the bid and asked prices of the common stock was
$.87 per share. The registrant had 1,950,000 shares of common stock, $.001
par value, outstanding as of October 1, 2001.
PART I
ITEM 1. BUSINESS
Introduction and History
Vartech Systems Inc., formerly known as Richmond Capital Corporation, ("the
Company") was incorporated under the laws of the State of Colorado in 1988
for the purpose of raising capital and to seek out business opportunities
in which to acquire controlling interest.
PTR Capital Corporation, a Delaware corporation (PTR), acquired control of the
Company as of January 15, 1991 through the purchase of a majority of the
Company's common stock, representing 70.8% of the then-currently issued and
outstanding voting securities of the Company.
The Company remained a development-stage enterprise from inception through July
31, 1990, as it identified and evaluated acquisition opportunities. No
acquisition was made by the Company prior to July 16, 1991.
During the period from July 1991 through July 1997, the company pursued various
business opportunities and acquisitions including the repair and rebuilding of
computer disk drives, reselling of computer mainframe and other miscellaneous
ventures.
On July 1, 1997, the Company acquired all of the issued and outstanding shares
of common stock of 21st Century Professionals, Inc("21st"). At the closing
of this acquisition, Kim D'Albor, the former major shareholder of 21st, was
elected President of 21st Century Professionals and Director of the Company.
In addition, Brent J. Hedges, a former shareholder of 21st was elected
Vice-president and Secretary of 21st Century Professionals and Director of
the Company.
21st Century Professionals was incorporated in the state of Louisiana in 1993
and derived substantially all of its revenue from computer hardware and
software sales and computer related consulting services.
On May 4, 1999, the Company sold the stock of this subsidiary for $500 plus the
assumption of all the subsidiary's liabilities to a related party. At the time
of sale, liabilities exceeded assets by $129,739. As a result of the nature of
this transaction, the Company has reflected the gain as an increase to capital
in excess of par value.
Description of Business
VarTech Systems Inc. is an authorized reseller of computers and software. The
Company operates in three areas: i) Display segment - the repair and
refurbishment of industrial grade monitors and the manufacturing and selling
of the VarTech Displays line of industrial monitors; ii) Solution Integration
segment - computer consulting services which includes network design,
installation and software application development; iii) Network segment -
markets online computer training products and other Internet related services
including the development and maintenance of personal interactive webpages
through a network of independent consultants worldwide.
The Company's segments are strategic business units that provide differing
products and/or services along with different distribution methods. They are
managed separately because each business unit requires different employee
skills, product development and marketing strategies. The Company evaluates
the performance based on the profit or loss from operations before income taxes
and in the case of the network, on the size of the consultant base.
Marketing and Customers
The Company utilizes telephone solicitation, personal contact, direct mail, fax
broadcasting, industry specific advertising, the internet, and participates
in regional trade shows and expos to market itself and its services to its
customer base. VarTech's customer base is global and is comprised mainly of
large manufacturing operations in process control, pulp and paper, and food
processing along with utilities and military facilities. Through a network
of independent consultants worldwide, the Company markets online computer
training and the maintenance of personal interactive webpages.
Warranty and Customer Service
The Display unit of the Company provides a repair, replacement or full refund
warranty for one hundred twenty (120) days from the date of sale. There were
no significant warranty claims pending at July 31, 2001.
Employees
As of July 31, 2001, the Company employed forty people full-time including
four executive officers. Employee relations are considered good and the Company
has no collective bargaining contracts covering any of its employees.
Competition
The Company is involved in a market where many different companies provide the
same basic services. There is no dominant company engaged in providing the same
basic services as that of the Company.
ITEM 2. PROPERTIES
The Company is headquartered in 15,746 square feet of leased office space in
Baton Rouge, Louisiana under a five year lease which expires November, 2004.
The Company's Display unit maintains a warehouse in 12,500 square feet of
space in Baton Rouge, Louisiana under a five year lease and a 12,000 square
foot service and assembly facility in Philadelphia, Pennsylvania with a three
year lease which expires in August 2002.
ITEM 3. LEGAL PROCEEDINGS
See notes to financial statements - Note 10, Commitments and contingencies-
Legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of fiscal year ending July 31, 2001.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq bulletin board market,
under the symbol VRTK. The following table sets forth the quarterly high
and low bid prices as reported for the periods indicated:
Fiscal Year ended Fiscal Year ended
July 31, 2001 July 31, 2000
High(1) Low(1) High(1) Low(1)
1st Quarter $1.75 $1.00 $2.00 $1.00
2nd Quarter $1.50 $0.63 $1.50 $0.63
3rd Quarter $1.00 $0.25 $2.00 $0.75
4th Quarter $1.15 $0.45 $2.00 $1.00
(1) The prices set forth in the table above were provided by the National
Quotation Bureau and reflect the high and low bid prices over each quarter.
During 2001, the price range for the Company's common stock averaged a bid of
$.75 per share.
These prices may represent inter-dealer quotations without retail markups,
markdowns, or commissions and may not necessarily represent actual transactions.
As of July 31, 2001, the Company had 276 holders of record of its common shares.
The Company has never paid cash dividends on its common stock and has no plans
to pay cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
July 31,
2001 2000 1999 1998 1997
Balance Sheet Data
Total assets $1,285,927 $1,178,273 $1,327,455 $2,959,956 $1,924,720
Long term debt - - 47,998 101,056 162,381
Stockholders' equity 652,033 513,276 522,824 433,044 372,637
Income Statement Data
Total revenue 6,835,009 6,594,139 5,723,376 6,654,986 3,001,492
Operating expenses 6,488,633 6,390,704 5,781,362 6,405,361 2,771,447
Net income (loss) 138,757 140,452 (189,959) 47,707 104,729
Basic and diluted
net income (loss)
per common share $.07 $.07 $(.09) $.02 $.06
Weighted average number
of common shares
outstanding:
Basic 1,950,000 1,987,808 1,988,750 1,948,942 1,799,803
Diluted 1,950,000 2,018,349 1,988,750 1,948,942 1,799,803
Common shares
outstanding 1,950,000 1,950,000 2,100,000 1,950,000 1,937,300
Preferred shares
outstanding - - - - -
There were no shares of the Company's sole class of preferred stock, $.01 par
value, outstanding as of July 31, 2001, 2000, 1999, 1998 and 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Managements' discussion and analysis of financial condition and results of
operations includes statements covering all segments of the Company. Those
business units are the Display segment which focuses on the repair and
refurbishment of industrial grade monitors and the manufacturing and selling
of the VarTech Displays line of industrial monitors; the Solution Integration
segment which provides computer consulting services that includes network
design, installation and software application development; and the Network
segment which markets online computer training products and other Internet
related services including the development and maintenance of personal
interactive webpages.
Results of Operations
The Company's 2001 sales volume increased over 2000 by approximately $240,000
or 4%. The increase in sales for 2001 was a result of the greater focus
on the sale of Display units. The Display segment's increase in sales was due
to the continued introduction and expansion of the Company's new product line.
The income from continuing operations for 2001 is directly related to the
deemphasizing of personal computer sales, and the focus and concentration
on generating increased revenue from displays.
Company Cost of Sales
The cost of sales for the years ended July 31, 2001, 2000 and 1999 were 57%,
51% and 63%, respectively. Hardware and software costs decreased due to the
reduced focus on personal computer sales. The increase in overall cost of
sales was due to the Company's increased focus on new product sales which
carry a lower margin than repairs and refurbishment.
Other Operating Expenses
Selling expenses as a percentage of sales for the years ended July 31, 2001,
2000 and 1999 were 14%, 24% and 16%, respectively. Sales commissions for the
year ended July 31, 2000 were significantly higher due to the fact that
network segment sales, which have a higher commission rate than the other
segments, represented a larger percentage of overall sales.
Administrative and general expenses increased by $111,000 from 2000 to 2001;
however, as a percentage of sales it remained constant at approximately 24%.
This percentage should begin to decrease as the sales volume increases.
Interest expense increased from 2000 to 2001 due to an increase in outstanding
loan balances. The decrease from 1999 to 2000 was due to a reduction in
borrowing to finance inventory and receivables resulting from the decrease
in personal computer sales.
Liquidity and Capital Resources
The Company has $1,046,088 in current assets at July 31, 2001 and $599,856 in
current liabilites. The Company has lines of credit totaling $750,000, of
which $461,000 is available at July 31, 2001.
The Company believes its cash generated from operations, its ability to secure
short term working capital needs, and the prospects of increasing sales of
displays and online training will provide sufficient cash to meet current
working capital needs. Capital is typically provided primarily through cash
from operations and credit received from trade creditors and advances from
the established lines of credit. The working capital ratio improved to
1.72 in 2001 as compared to 1.19 in 2000.
There were capital expenditures for property and equipment during the fiscal
years ended July 31, 2001, 2000 and 1999 totaling $1,500, $48,000 and $54,000.
No major capital expenditures are expected for fiscal 2002.
The Company had no long-term debt at July 31, 2001. The Company had $289,154
and $344,074 of advances against lines of credit at July 31, 2001 and 2000.
These funds were used to fund the purchase of products for sale and to finance
receivables. The Company does not anticipate the need for long-term
borrowing for fiscal year 2002.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report appears at page F1 and the Financial
Statements and Notes to the Financial Statements are set forth herein
beginning on page F2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
All directors serve for a one-year period or until their respective successors
are elected and qualified. Officers serve at the discretion of the Board of
Directors.
Positions(s)
Name Age with the Company
C. Wayne Prater 60 President, Chief Executive Officer
and Director
J. Keith Henderson 35 Vice-President, President-Displays Division
and Director
Daniel S. Gould 38 Vice-President, Secretary and Director
Michele L. Gould 38 Director
Information concerning the business experience of each of the directors and
executive officers of the Company is as follows:
C. Wayne Prater is President, Chief Executive Officer and a Director of
the Company. Prior to being elected President of the Company on
November 1, 1999, Mr. Prater had served as a consultant to the Company since
1992. Since 1991, he has been a Director and President of PTR Capital
Corporation, a private investment company which is a majority shareholder of
the Company.
J. Keith Henderson is Vice-President and a Director of the Company. He
also serves as President of the Displays Unit of the Company. Since 1991,
Mr. Henderson has been active in the day to day operations of the Company.
Daniel S. Gould is Vice-President, Secretary and a Director of the Company.
Prior to joining the Company in 1995, Mr. Gould was associated with the law firm
of McFarland, Gould, Lyons and Sullivan, P.A. for five (5) years.
Michele L. Gould is a Director of the Company. Ms. Gould held several
positions with the University of Tampa prior to 1995. She is a Director and
Vice-President of PTR Capital Corporation, a private investment company which is
a majority shareholder of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The following schedule lists those Officers or Directors who have received
cash compensation, bonuses, or deferred compensation in excess of $100,000.
Name and Common Stock
Principal Other Options Granted
Position Year Salary Compensation (# Shares)
C. Wayne Prater 2001 $147,500 $100,000 -
President and
Chief Executive 2000 $ 77,500 $150,000 100,000
Officer
1999 - - -
J. Keith Henderson 2001 $114,000 - -
Vice-President,
President-Displays 2000 - - -
Division & Director
1999 - - -
Kim L. D'Albor 2001 - - -
Former Director and
Past President- 2000 - - -
21st Century
Professionals, Inc. 1999 $27,700 $80,000 -
(1) See Item 13, "Certain Relationships and Related Transactions".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth as of October 1, 2001, the shares of the
Company beneficially owned by each person known to management to be the
beneficial owner of more than five percent (5%) of the outstanding shares, by
each officer and director, and by all officers and directors of the Company as
a group:
Amount and
Nature of Percent
Name and address of Title of Beneficial of
Beneficial Owner Class Ownership Class
Michele L. Gould Common 12,700 0.65%
11301 Industriplex Blvd.-Suite 4
Baton Rouge, Louisiana 70809
J. Keith Henderson Common 100,600 5.16%
11301 Industriplex Blvd.-Suite 4
Baton Rouge, Louisiana 70809
C. Wayne Prater Common 1,353,297(1) 69.40%
11301 Industriplex Blvd.-Suite 4
Baton Rouge, Louisiana 70809
Daniel S. Gould Common 18,000 0.92%
11301 Industriplex Blvd.-Suite 4
Baton Rouge, Louisiana 70809
All Officers and Directors Common 1,484,597 76%
as a Group (4 Persons)
(1) Mr. Prater owns 110,497 shares directly; 1,206,550 shares owned indirectly
which are held by PTR Capital Corporation; and 36,250 shares which are
held by his wife Lucy M. Prater.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended July 31, 1999, as consideration for financial and
consulting services provided to VarTech, the Company granted options to
purchase 150,000 shares of the Company stock to C. Wayne Prater at an exercise
price of $1.00. These options were exercised during the year ended
July 31, 1999. During the year ended July 31, 2000, the Company repurchased
the 150,000 shares from the CEO and majority shareholder for $1.00 per share.
These shares are held by the Company as treasury stock.
On November 1, 1999, the Board of Directors approved a Stock Option and Purchase
Plan which authorized the Company's CEO and majority shareholder to grant
options to employees of the Company to purchase shares of the Company's common
stock. These options are granted in recognition of services performed and
as an incentive for future performance and are limited to 200,000 shares per
employee per year. Accordingly, options to purchase 245,000 shares of the
Company's common stock were granted to five key employees (including 100,000
share options granted to the CEO and majority shareholder) during the year
ended July 31, 2000 at an exercise price of $1.25. If unexercised, this group
of options are scheduled to expire on October 31, 2004.
The stock options described above were issued with exercise prices determined
by the Company's Board of Directors to be equal to, or greater than, the fair
value of the Company's common stock on the respective grant dates.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as parts of this Report starting on
page F1:
1. Financial Statements
Independent Auditors' Report
Balance Sheets
Statements of Income (Loss)
Statements of Changes in Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
2. Schedules
NONE
3. The exhibits are listed in the Index of Exhibits required by Item 601 of
Regulation S-K at Item (c) below.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the quarter
ended July 31, 2001.
(c) Exhibits
Exhibits marked with an asterisk (*) have heretofore been filed with the
Commission and are incorporated herein by reference
Exhibit Consecutive
Number Exhibits Page No.
1.0 Underwriting Agreement *
1.2 Participating Dealer Agreement *
2.1 Contract for Sale and Purchase of Stock *
2.2 Contract for Exchange of Stock *
3.0 Registrant's Articles of Incorporation *
3.1 Bylaws *
4.0 Warrant Agreement *
4.2 A Warrant and B Warrant *
5.0 Opinion of R. Michael Sentel, Esquire, regarding
the legality of the securities being registered *
10.0 Escrow of Proceeds Agreement with TecNational
Bank, Denver, Colorado *
10.2 Commercial Lease Agreement, between Prime
Investments, Inc. and Richmond Capital
Corporation relating to certain premises
leased to Richmond Capital Corporation located
in Woodstock, Georgia *
10.3 Lease Rental Agreement between Home Management
Associates, Ancient Richmond Capital Corporation
relating to certain premises leased to Richmond
Capital Corporation located in Woodstock, Georgia *
10.4 Agreement of Lease between RCC of Louisiana, Inc
and Bubaco Enterprises, Inc. relating to certain
premises leased from RCC of Louisiana, Inc. for
a truck stop operation *
10.5 Lease of Commercial Property between RCC of
Louisiana, Inc. and Computer Technologies, Inc.
related to certain premises leased from RCC of
Louisiana, Inc. for a truck stop operation *
10.6 Commercial Lease Agreement between Bobbie B.
Crump, Sr. and Richmond Capital Corporation
relating to certain premises leased to Richmond
Capital Corporation located in Baton Rouge,
Louisiana *
10.7 Promissory Note from Company to Betrand O.
Baetz, Jr. *
10.8 Promissory Note from Company to Frank G.
Jarzombek *
10.9 Promissory Note from Company to Eugene V.
Larsen *
10.10 Promissory Note from Company to Scott E.
Gruendler *
10.11 Stock Option Agreement *
10.12 Agreement of Employment-Kim D'Albor *
10.13 Agreement of Employment-Brent Hedges *
10.14 Agreement of Employment- Dalbert Varnell, Jr. *
10.15 Commercial Sublease Agreement with Wireless One, Inc.
related to certain premises leased in Baton Rouge,
Louisiana *
10.16 Stock Option Agreement *
10.17 Commercial Lease Agreement with First
Industrial, L.P. related to certain premises
leased in Baton Rouge, Louisiana *
10.18 Board of Directors Minutes on
Authorization of Stock Options *
10.19 Sample Stock Option Grant Letter *
16.0 Letter from Samson, Robbins & Associates
regarding change in certifying accountants *
24.1 Consent of R. Michael Sentel, Esquire (included
in Exhibit 5) *
24.2 Consent of Brenner & Ianne *
As to any security holder requesting a copy of this Form 10-K, the Company will
furnish any Exhibit indicated in the above list as filed with this Form 10-K
upon payment to it of its expenses in furnishing such Exhibit.
Independent Auditors' Report
To the Board of Directors
of VarTech Systems Inc.
Baton Rouge, Louisiana
We have audited the accompanying balance sheets of VarTech Systems Inc. as
of July 31, 2001 and 2000, and the related statements of income (loss),
changes in stockholders' equity and cash flows for the years ended July 31,
2001, 2000 and 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VarTech Systems Inc. as of
July 31, 2001 and 2000, and the results of it's operations and cash flows for
the years ended July 31, 2001, 2000 and 1999, in conformity with United States
generally accepted accounting principles.
/s/ Laney, Boteler & Killinger
Atlanta, Georgia
September 27, 2001
F1
VarTech Systems Inc.
Balance Sheets
Assets
July 31,
-------------------------
2001 2000
---------- -----------
Current assets
Cash and cash equivalents $ 78,806 $ 15,138
Accounts receivable - trade 569,063 500,918
Accounts receivable - other 2,755 2,359
Accounts receivable - shareholder - 22,500
Inventory 395,464 201,685
Deferred income taxes - 8,502
--------- ---------
Total current assets 1,046,088 751,102
--------- ---------
Property and equipment
Furniture and fixtures 179,177 179,177
Equipment 345,758 344,268
Leasehold improvements 12,145 12,145
--------- ---------
537,080 535,590
Less: Accumulated depreciation 311,611 223,407
--------- ---------
225,469 312,183
Other assets --------- --------
Deposits 14,370 114,988
--------- ---------
14,370 114,988
--------- ---------
$1,285,927 $1,178,273
========== ==========
See notes to financial statements
F2
VarTech Systems Inc.
Balance Sheets
Liabilities and Stockholders' Equity
July 31,
---------------------------
2001 2000
---------- ---------
Current liabilities
Notes payable - credit lines $ 289,154 $ 344,074
Accounts payable 159,053 199,616
Income taxes payable 29,012 -
Other accrued expenses 122,637 90,300
---------- -----------
Total current liabilities 599,856 633,990
Deferred income taxes 34,038 31,007
---------- -----------
Total liabilities 633,894 664,997
---------- -----------
Stockholders' equity
Preferred stock, 1,000,000 shares,
$.01 par authorized, no shares issued - -
Common stock, 100,000,000 shares,
$.001 par authorized; 2,100,000
shares issued; 1,950,000 outstanding 2,100 2,100
Capital in excess of par value 704,761 704,761
Treasury stock; 150,000 shares at cost (150,000) (150,000)
Retained earnings (deficit) 95,172 (43,585)
----------- ----------
Total stockholders' equity 652,033 513,276
----------- ----------
$ 1,285,927 $ 1,178,273
=========== ==========
See notes to financial statements
F3
VarTech Systems Inc.
Statements of Income (Loss)
For the Years Ended July 31,
---------------------------------------
2001 2000 1999
---------- ---------- ----------
Revenues
Hardware and software $5,818,001 $4,472,086 $4,143,551
Services 121,510 401,640 908,298
Network 895,498 1,720,413 671,527
---------- ---------- ----------
6,835,009 6,594,139 5,723,376
---------- --------- ----------
Cost of sales
Hardware and software 2,939,807 2,063,275 2,533,098
Services 619,126 792,629 833,722
Network 382,216 503,910 257,829
---------- ---------- ----------
3,941,149 3,359,814 3,624,649
---------- ---------- ----------
Gross profit 2,893,860 3,234,325 2,098,727
---------- ---------- ---------
Operating expenses
Selling expense 966,493 1,561,171 909,263
Administrative and general 1,580,991 1,469,719 1,247,450
---------- ---------- ----------
2,547,484 3,030,890 2,156,713
---------- ---------- ----------
Income (loss) before other
operating expenses 346,376 203,435 (57,986)
---------- ---------- ----------
Other operating expense
Interest expense 42,580 33,547 74,647
Depreciation and amortization 88,204 86,554 87,789
Loss on disposal of assets - - 6,500
---------- ---------- ----------
130,784 120,101 168,936
---------- ---------- ----------
Income (loss) from continuing
operations before income tax
(provision) benefit and gain
from release of debt 215,592 83,334 (226,922)
Gain from release of debt - 105,267 -
---------- ---------- ----------
Net income (loss) before income
tax (provision) benefit 215,592 188,601 (226,922)
Income tax (provision) benefit (76,835) (48,149) 36,963
---------- -------- ---------
Net income (loss) $ 138,757 $140,452 $(189,959)
========== ======== =========
Basic and diluted net income
(loss) per common share $ .07 $ .07 $ (.09)
========== ======== ==========
Weighted average number of
common shares outstanding:
Basic 1,950,000 1,987,808 1,988,750
Diluted 1,950,000 2,018,349 1,988,750
========= ========= =========
See notes to financial statements
F4
VarTech Systems Inc.
Statements of Changes in Stockholders' Equity
for the Years Ended July 31, 2001, 2000 and 1999
Common Stock Issued Capital in Retained Total
------------ ------ Excess of Earnings Treasury Stockholders'
Shares Amount Par Value (Deficit) Stock Equity
-------- ------- --------- -------- -------- ----------
Balance,
July 31, 1998 1,950,000 $1,950 $ 425,172 $5,922 - $ 433,044
Shares of common
stock issued due
to exercise
of options 150,000 150 149,850 150,000
Net loss for
the year ended
July 31, 1999 (189,959) (189,959)
Gain on dispostion
of subsidiary 129,739 129,739
--------- ------ --------- -------- --------- ---------
Balance,
July 31, 1999 2,100,000 2,100 704,761 (184,037) - 522,824
Purchase of
treasury stock (150,000) (150,000)
Net income for
the year ended
July 31, 2000 140,452 140,452
--------- ------ --------- -------- --------- ---------
Balance,
July 31, 2000 2,100,000 2,100 704,761 (43,585) (150,000) 513,276
Net income for
the year ended
July 31, 2001 138,757 138,757
--------- ------ --------- -------- --------- ---------
Balance,
July 31, 2001 2,100,000 $2,100 $ 704,761 $95,172 $(150,000) $ 652,033
========= ====== ========= ======== ========= =========
See notes to financial statements
F5
VarTech Systems Inc.
Statements of Cash Flows
For the Years Ended July 31,
---------------------------------
2001 2000 1999
--------- -------- -----------
Cash flows from operating activities
Net income (loss) $ 138,757 $140,452 $(189,959)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 88,204 86,554 177,789
Loss on disposal of assets - - 6,500
Gain from release of debt - (105,267) -
Deferred income taxes 11,533 47,440 (36,495)
Changes in operating assets and liabilities:
Decrease (increase) in assets
Accounts receivable (68,541) 58,632 237,080
Inventory (193,779) 18,550 126,621
Other operating assets 100,618 5,560 (6,197)
Increase (decrease) in liabilities
Accounts payable (40,563) (15,399) (311,219)
Income taxes payable 29,012 - (16,302)
Accrued expenses 32,337 (9,838) 14,009
Non-compete obligation - - (90,000)
Deferred lease expense - (20,632) (643)
--------- --------- ---------
Net cash provided by (used in)
operating activities 97,578 206,052 (88,816)
--------- --------- ---------
Cash flows from investing activities
Purchase of property and equipment (1,490) (47,530) (54,062)
Net decrease (increase) in account
and note receivable-stockholder 22,500 (22,500) -
Proceeds from sale of
subsidiary stock - - 500
--------- --------- ---------
Net cash provided by (used in)
investing activities 21,010 (70,030) (53,562)
--------- --------- ---------
See notes to financial statements
F6
VarTech Systems Inc.
Statements of Cash Flows (continued)
For the Years Ended July 31,
---------------------------------
2001 2000 1999
-------- ------- --------
Cash flows from financing activities
Net (payments on) proceeds from
credit lines (54,920) (344) 14,576
Payments on notes payable - - (44,297)
Purchase of treasury stock - (150,000) -
Proceeds from issuance of common stock - - 150,000
--------- --------- ---------
Net cash (used in) provided by
financing activities (54,920) (150,344) 120,279
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 63,668 (14,322) (22,099)
Cash and cash equivalents,
beginning of year 15,138 29,460 51,559
--------- --------- ---------
Cash and cash equivalents, end of year $ 78,806 $ 15,138 $ 29,460
========= ========= =========
See notes to financial statements
F7
VarTech Systems Inc.
Notes to Financial Statements
July 31, 2001 amd 2000
Note 1 - Summary of significant accounting policies
Organization and description of business
VarTech Systems Inc. (the "Company" or "VarTech"), was incorporated under the
laws of the State of Colorado on April 5, 1988. In October 1989, the Company
completed a public offering of its common stock. PTR Capital Corporation, a
Delaware corporation, acquired control of the Company as of January 15, 1991,
through the purchase of a majority of the Company's common stock.
The Company's business is the repair and refurbishment of industrial grade
monitors and the manufacturing and selling of the VarTech Displays line of
industrial monitors. The Company also provides computer consulting services
which includes network design, installation and software application
development. The Company, through a distribution agreement, markets online
computer training products and other Internet related services including the
development and maintenance of personal interactive webpages.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. The Company held no cash equivalents at July 31, 2001 or
2000.
Allowance for doubtful accounts
The Company uses the allowance method to account for uncollectible accounts
receivable. The allowance for doubtful accounts is based on management's
estimate of uncollectible accounts. At July 31, 2001 and 2000, all accounts
receivable were considered collectible and no allowance is considered
necessary.
Inventories
Inventories of merchandise held for sale are stated at the lower of cost or
market, with cost being determined by using the first-in, first-out method of
accounting for inventory. Inventories of the Company's educational product
licenses are stated at the lower of cost or market, with cost being
determined by using the specific identification method of accounting for
inventory.
F8
Property, equipment and depreciation
Property and equipment are recorded at cost. Depreciation is provided using
straight-line methods over the estimated useful lives of the assets. Useful
lives range from five to ten years for the furniture, fixtures and equipment
and ten years for the leasehold improvements. Maintenance and repairs are
charged to expense as incurred. Upon sale, retirement or other disposition of
these assets, the cost and accumulated depreciation are removed and any gain
or loss on the disposition is included in income.
Goodwill and non-compete agreements
Goodwill arises in connection with business combinations accounted for as
purchases where the purchase price exceeds the fair value of the net assets of
the acquired businesses. Goodwill was amortized on a straight-line basis over
a fifteen year period. The carrying value of goodwill paid in connection to a
past subsidiary acquisition was written down to $0 during 1999 upon the sale
of the Company's subsidiary (Note 2). The deferred cost of the non-compete
agreements was amortized on a straight-line basis over the life of the
agreements (Note 2).
Income taxes
Deferred income taxes are recognized for the tax consequences of temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities. Valuation allowances are established when
considered necessary to reduce deferred tax assets to the amount expected to
be realized. Income tax expense is the tax payable for the period plus or
minus the change during the period in deferred tax assets and liabilities.
Use of estimates - general
The preparation of financial statements in conformity with United States
generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Treasury stock
The Company uses the cost method of accounting for the aquisition or disposition
of the Company's own stock.
Stock options and compensation
The Company accounts for stock options in accordance with the provisions of APB
Opinion No. 25, "Accounting for stock issued to employees", and related
pronouncements. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. Accordingly, the Company has not recognized compensation
F9
expense for its options granted during the periods presented. The Company
has adopted the disclosure provisions of FASB Statement No. 123, "Accounting
for stock-based compensation". These disclosure provisions allow entities to
continue to apply the provisions of APB Opinion No. 25 if accompanied by
disclosure of pro forma earnings and earnings per share calculations for
employee stock option grants as if the fair-value-based method defined in FASB
Statement No. 123 had been applied.
Advertising and promotion
The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising and promotion expense totaled $19,489,
$12,767 and $9,231 for the years ended July 31, 2001, 2000 and 1999,
respectively.
Revenue recognition policy
Income is earned and recognized when the goods are delivered, services are
performed, licenses are sold, or webpages are developed and collection is
reasonably assured and no further obligation of the Company exists. The
company uses the percentage-of-performance method for recognizing revenue on
its long-term service and system implementation contracts. Under this method,
revenue that is recognized on a particular contract is proportional to the
ratio of costs incurred to date on the associated project to the estimated
total cost of the project. As of July 31, 2001 and 2000 there were no long-term
service or system implementation contracts in progress.
Note 2 - Business combinations, acquisitions and dispositions
On June 30, 1997, the Company purchased 21St Century Professsionals, Inc.,
(21St Century or Subsidiary), by exchange of stock valued at $100,000. The
transaction, effective July 1, 1997, was accounted for under the purchase
method of accounting. The excess of the purchase price, plus expenses
associated with the acquisition, over the fair value of identifiable tangible
and intangible assets was allocated to goodwill.
On June 30, 1997, 21St Century entered into employment agreements with its
three former stockholders. Each agreement established separate base salaries
as well as other provisions of employment and included certain non-compete
covenants. The employment provisions were scheduled to expire on June 30, 2002.
One of these former 21St Century stockholders resigned during the year ended
July 31, 1998, effectively terminating his agreement. Another of the former
21St Century stockholders renegotiated his employment agreement during the year
ended July 31, 1999, terminating the original agreement. Payments under the
third agreement, with established monthly payments of $10,000, were suspended
in April 1999, following the filing of a lawsuit by the employee against the
Subsidiary and the Company as more fully described in Note 10. Amortization of
the deferred costs and payments under these non-compete obligations totaled
$90,000 for the year ended July 31, 1999.
F10
On May 4, 1999, the Company sold the stock of this Subsidiary for $500 plus the
assumption of all the Subsidiary's liabilities to a related party. At the time
of sale, liabilities exceeded assets by $129,739. As a result of the nature of
this transaction, the Company has reflected the gain as an increase to capital
in excess of par value for the year ended July 31, 1999.
Note 3 - Deposits
Included in deposits at July 31, 2000 was $100,000 held by an
underwriter in connection with a contemplated secondary offering of the
Company's securities. During the year ended July 31, 2001,the financial services
firm applied this deposit to various investment banking services provided to the
Company including general financial and strategic advice on the Company's
current business model and assistance in evaluating potential mergers and
acquisitions. Accordingly, the Company has recognized this amount as a
consulting service expense during the year ended July 31, 2001.
Note 4 - Net income per share
Basic earnings per common share are computed using the weighted average number
of common shares and common equivalent shares outstanding during each year.
Common share equivalents represent shares issuable upon the assumed exercise of
stock options and warrants. The stock options and warrants are included in the
computation using the treasury stock method if they would have a dilutive
effect. Common share equivalents are not considered in calculations of per
share data when their inclusion would be anti-dilutive. The composition of
basic and diluted net income per common share is summarized as follows:
Net Weighted Per
Income Average Share
Shares Amount
------- -------- ------
July 31, 2000 - Net income per
common share - basic $140,452 1,987,808 $ .07
Effect of dilutive securities:
Stock Options - 30,541 -
-------- --------- -------
July 31, 2000 - Net income per
common share - diluted $140,452 2,018,349 $ .07
======== ========= =======
For purposes of determining diluted earnings per share, there were no common
stock equivalents at July 31, 2001 or 1999.
Note 5 - Stock options
The former stockholders of 21St Century were granted options to purchase 400,000
shares of VarTech common stock at an option price of $2.50 per share. Of these
options, 40,000 expired upon the resignation of one of the three former
stockholders (Note 2) during the year ended July 31, 1998. The remaining
options, exercisable only if certain performance criteria of 21St Century were
F11
met, were effectively canceled upon the disposition of the Subsidiary during
the year ended July 31, 1999. The performance criteria was not met during any
of the years under the agreement.
During the year ended July 31, 1999, as consideration for financial and
consulting services provided to VarTech, the Company granted options to
purchase 150,000 shares of the Company stock to the CEO and majority
shareholder at an exercise price of $1.00. These options were exercised
during the year ended July 31, 1999.
On November 1, 1999, the Board of Directors approved a Stock Option and Purchase
Plan which authorizes the Company's CEO and majority shareholder to grant
options to employees of the Company to purchase shares of the Company's common
stock. The plan allows for options to be granted in recognition of services
performed and as an incentive for future performance and are limited to
200,000 shares per employee per year. Accordingly, options to purchase
245,000 shares of the Company's common stock were granted to 5 key employees
(including 100,000 share options granted to the CEO and majority shareholder)
during the year, at an exercise price of $1.25. If unexercised, this option
group is scheduled to expire on October 31, 2004.
The following summarizes information about stock options outstanding and
exercisable for the years ended July 31, 1999, 2000 and 2001:
Weighted
Options Options Average
Outstanding Exercisable Price
----------- ----------- -------
Balances at July 31, 1998 360,000 - $ -
Granted in 1999 150,000 150,000 1.00
Exercised (150,000) (150,000) 1.00
Canceled/Expired (360,000) - -
----------- ----------- --------
Balances at July 31, 1999 - - -
Granted in 2000 245,000 245,000 1.25
----------- ----------- --------
Balances at July 31, 2000 245,000 245,000 1.25
Canceled/Expired - - -
----------- ----------- --------
Balances at July 31, 2001 245,000 245,000 1.25
=========== =========== ========
The stock options described above were issued with exercise prices determined
by the Company's Board of Directors to be equal to, or greater than, the fair
value of the Company's common stock on the respective grant dates. Accordingly,
no compensation expense was recognized under the reporting requirements
of SFAS No. 123 and there was no effect on pro forma net income, as computed
under this statement, for the periods presented.
F12
Note 6 - Treasury stock
During the year ended July 31, 2000, the Company repurchased 150,000 shares of
common stock from the CEO and majority shareholder for $1.00 per share.
Note 7 - Notes payable-credit lines and other credit facilities
Notes payable credit lines consisted of the following at July 31, 2001 and 2000:
2001 2000
--------- ---------
Draws against a $50,000 credit line payable
to Hibernia National bank with interest at variable
rates (9.00% at July 31, 2001). The credit line is
renewable annually and has a current maturity
of March 19, 2002. The loan is secured by a
guarantee from a stockholder. $ 39,177 $ 48,957
Draws against a $600,000 demand credit line
payable to Hibernia National Bank with interest
at the WSJ prime rate (6.75% at July 31, 2001).
The maturity date of the credit line is August 24,
2002. Maximum draws against this credit line at
any time are limited to the lesser of $600,000 or
80% of trade receivables plus 35% of inventory.
This credit line is secured by the Company's cash
accounts with the bank, accounts receivable,
inventory and the personal guarantee of a stockholder. 249,977 250,000
Draws against a $50,000 unsecured credit
line payable on demand with monthly
interest payments at 9.50%. - 45,117
--------- ---------
$ 289,154 $ 344,074
========= =========
In connection with the $600,000 credit line above, the bank has issued a
stand-by letter of credit in the amount of $150,000 in favor of one of
the Company's vendors. The stand-by letter of credit is scheduled to expire
July 31, 2002. As of July 31, 2001, no advances had been made from this
credit facility. Advances, if any, will be subject to similar borrowing
limitations as described above.
The Company also has access to an additional $50,000 credit line with a bank.
As of July 31, 2001 and 2000 no advances had been made from this
credit facility.
Note 8 - Long-term debt and gain on release of debt
Upon execution of the sub-lease agreement specified in Note 10, the Company
agreed, in addition to the monthly rent, to make payments to the sub-lessor
in connection with the purchase of furniture and equipment at the Company's
office and warehouse space located in Baton Rouge, Louisiana. The unsecured
obligation was payable in monthly installments of $5,000, including imputed
interest at 9%, through May 1, 2001. The balance of this obligation totaled
$105,267 at July 31, 1999. During the year ended July 31, 2000, the sub-lessor
filed for bankruptcy and negotiated a lease cancellation agreement with the
landlord effectively terminating the payment arrangement between the Company
and sub-lessor. As a result, the Company recognized a gain from the release
of this debt in the amount of $105,267.
F13
Note 9 - Other related party transactions
During the year ended July 31, 2000, the Company made advances to the CEO and
majority shareholder totaling $22,500. These advances, recorded as accounts
receivable at July 31, 2000, were paid by the shareholder during the year ended
July 31, 2001. Additionally, this shareholder was paid salary and consulting
fees during the years ended July 31, 2001 and 2000, totaling $247,500 and
$227,500, respectively, for services performed.
Note 10 - Commitments and contingencies
Legal proceedings
As mentioned in Note 2, a former employee and past president of 21St Century
(and also a current stockholder of the Company) filed a lawsuit against
21St Century, the Company and the majority stockholder of the Company during
the year ended July 31, 1999. The past employee asserts that he is entitled
to enforce the payments due to him under the non-competition agreement contained
in the agreement of employment as outlined in Note 2. Although no dollar
amount has been specified, the past employee seeks damages estimated by
management and legal counsel at $1,150,000 stemming from the non-payment of a
portion of his salary and the remaining scheduled non-compete payments. The
suit is currently in preliminary discovery and legal counsel for the Company
has estimated, in their opinion at this stage of the lawsuit, the probable
outcome to be that the Company will have no liability under the lawsuit.
Accordingly, no loss accrual has been made in the financial statements at
July 31, 2001 or 2000.
Operating leases
Beginning September 1997, the Company leased its office and warehouse under a
sub-lease scheduled to expire August 2002 (Note 8). Due to the declining
financial position of the sub-lessor, the Company suspended all lease payments
due under the sub-lease from the period beginning August 1999 through November
1999, at which time the Company was released from obligation under this lease.
The Company negotiated a new lease directly with the landlord. The following
summarizes the Company's current obligations under long-term leases at
July 31, 2001:
Location Baton Rouge Baton Rouge Pennsylvania
Activity Office & Shop Warehouse Office & Shop
------------- ----------- -------------
Date of lease 10/7/99 11/13/97 7/9/99
Lease term begins 12/1/99 5/1/98 8/16/99
Lease term ends 11/30/04 4/30/03 8/30/02
Renewal option None 1@5 years None
Contingent rents No No No
Initial rent $10,169 $4,690 $5,000
Escalation 5/01 - 10,497 No No
9/02 - 10,694
F14
Rent paid or accrued under these leases, the former sub-lease and other
short-term office space leases including common maintenance charges associated
with each lease during the years ended July 31, 2001, 2000 and 1999 totaled
$300,198, $255,950 and $236,958, respectively.
In accordance with Financial Accounting Standard Board's Statement # 13
regarding operating leases having initial or remaining non-cancelable lease
terms in excess of one year, the accompanying financial statements reflect
rental expense on a straight-line basis over the term of the respective leases.
This straight-line rent adjustment resulted in reductions to rent expense of
$0, $20,632 and $643, for the years ended July 31, 2001, 2000 and 1999,
respectively.
Future minimum payments, by year and in the aggregate, under noncancellable
operating leases with initial or remaining terms of one year or more consisted
of the following at July 31, 2001:
Year Ending July 31, Amount
------------------- ---------
2002 $ 242,248
2003 175,343
2004 128,330
2005 42,777
---------
Total $ 588,698
=========
Note 11 - Pension plans
Effective April 1, 1999, the Company adopted a 401(k) retirement plan for its
employees. Under the current plan, employees may participate upon obtaining the
age of 21 and completing one year of service with the Company. The Company can
make discretionary matching contributions to the plan. The Company made no
matching contributions to the plan for the years ended July 31, 2001,
2000, or 1999.
Note 12 - Warranties
The company established a warranty program that generally provides for repair,
replacement or full refund on all equipment sales for a period of one hundred-
twenty (120) days from the date of sale. No significant warranty claims were
F15
filed during these years and, at July 31, 2001 and 2000, no significant
warranty claims were pending.
Note 13 - Supplemental disclosure of cash flow information
Cash paid for interest during the years ended July 31, 2001, 2000 and 1999
totaled $41,128, $38,779 and $36,520, respectively.
Income taxes paid during the years ended July 31, 2001, 2000 and 1999 totaled
$38,056, $0 and $13,066, respectively.
Note 14 - Income taxes
The components of the income tax provision or (benefit) consist of the
following:
Year ended July 31,
2001 2000 1999
------- ------- -------
Current:
Federal $ 58,976 $ 709 $ -
State 6,326 - -
-------- ------- -------
65,302 709 -
Deferred:
Federal 3,815 43,723 (35,238)
State 7,718 3,717 (1,725)
-------- ------- --------
11,533 47,440 (36,963)
-------- ------- --------
Total income tax
provision (benefit) $76,385 $48,149 $(36,963)
======= ======= =========
Deferred income taxes are provided to reflect temporary differences between
financial and income tax reporting. Deferred assets and liabilities resulting
from these temporary taxable or deductible differences are summarized by
related tax effect as follows at July 31, 2001 and 2000:
F16
2001 2000
-------- ---------
Deferred tax asset/(liability)
Net operating loss carry forwards $ - $ 5,814
Charitable contribution deduction carryforward - 2,688
-------- --------
Total - deferred tax asset - 8,502
-------- --------
Property and equipment (34,038) (31,007)
--------- --------
Total - deferred tax liability (34,038) (31,007)
--------- --------
Net - deferred tax asset/(liability) $(34,038) $(22,505)
========= ========
The provision (benefit) for income taxes for the years ended July 31, 2001, 2000
and 1999, varies from the amount determined by applying the Federal statutory
rate of 34% to pretax income as a result of the following:
2001 2000 1999
------- ------- --------
Income tax expense at Federal
statutory rate of 34% $72,537 $64,124 $ -
Effect of graduated rates on Federal income tax (6,951) (897) -
Benefit of net operating losses (3,251) (14,377) (34,954)
Property and equipment 4,923 - (1,540)
State income taxes 9,826 - -
Other (249) (701) (469)
-------- -------- --------
Actual income tax provision (benefit) $76,835 $48,149 $(36,963)
======== ======== =========
As of July 31, 2001, the company has used all Federal and State loss carry
forwards.
Note 15 - Fair values of financial instruments
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments.
Cash and cash equivalents - The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value evident by the short
maturity of these instruments.
Current-term debt - The carrying amount reported in the balance sheet for
current-term debt approximates fair value evident by the short maturity
of these instruments.
F17
The cost and estimated fair values of the Company's financial instruments at
July 31, 2001 and 2000, are as follows:
Carrying Fair
Amount Value
--------- --------
July 31, 2001
------------------------
Financial assets:
Cash and cash equivalents $ 78,806 $ 78,806
Financial liabilities:
Current-term debt $ 289,154 $ 289,154
July 31, 2000
Financial assets:
Cash and cash equivalents $ 15,138 $ 15,138
Financial liabilities:
Current-term debt $ 344,074 $ 344,074
Note 16 - Segment Information
The Company has adopted the disclosure requirements of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which
establishes standards for additional disclosure about operating segments for
annual financial statements. This standard requires financial and descriptive
information be disclosed for segments whose operating results are reviewed by
the chief executve officer for decisions on resource allocation. As such,
the Company has three reportable segments:
Display segment - repair and refurbishment of industrial grade monitors
and manufacturing and selling of the VarTech Displays line of
industrial monitors;
Consulting segment - computer consulting services which includes network
design, installation and software application development.
Network segment - markets online computer training products and other
internet related services including the development and maintenance
of personal interactive web pages.
The accounting policies of the individual segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates the performance based on the profit or loss from operations before
income taxes and in the case of the network, on the size of the consultant
base.
The Company's reportable segments are strategic business units that provide
differing products and/or services along with different distribution methods.
They are managed separately because each business unit requires different
employee skills, product development and marketing strategies.
F18
The following provides information with respect to the performance of each of
the Company's operating segments:
Display Consulting Network Total
July 31, 2001:
Segment revenues $5,763,491 $ 176,020 $ 895,498 $6,835,009
Segment depreciation
and amortization 70,769 816 16,619 88,204
Segment income (loss) 357,464 (140,202) 40,910 258,172
Segment assets 1,185,907 6,478 90,787 1,283,172
July 31, 2000:
Segment revenues $4,146,953 $726,773 $1,720,413 $6,594,139
Segment depreciation
and amortization 69,791 515 16,248 86,554
Segment income (loss) 335,769 (213,865) (5,023) 116,881
Segment assets 949,291 16,063 79,558 1,044,912
July 31, 1999:
Segment revenues $2,884,664 $2,167,185 $ 671,527 $5,723,376
Segment depreciation
and amortization 47,920 33,325 6,544 87,789
Segment income (loss) 17,280 (121,300) (41,755) (145,775)
The following schedule reconciles amounts shown above for the segments to the
amounts presented in the Company's Balance Sheets and Statements of
Income (Loss):
2001 2000 1999
Revenues:
Total revenues from
reportable segments $6,835,009 $6,594,139 $5,723,376
Unallocated amounts:
Eliminations and other - - -
---------- ---------- ----------
Total revenues $6,835,009 $6,594,139 $5,723,376
========== ========== ==========
Net Income:
Total profit from
reportable segments $258,172 $ 116,881 $(145,775)
Unallocated amounts:
Gain from release of debt - 105,267 -
Loss on disposal of assets - - (6,500)
Income tax provision (76,835) (48,149) 36,963
Interest expense (42,580) (33,547) (74,647)
---------- ---------- --------
Net income $ 138,757 $ 140,452 $(189,959)
=========== ========== ==========
F19
2001 2000
Assets:
Total assets for reportable segments $1,283,172 $1,044,912
Unallocated amounts:
Accounts receivable - other 2,755 2,359
Accounts receivable - shareholder - 22,500
Underwriter deposit - 100,000
Deferred tax asset - 8,502
---------- ----------
Total assets $1,285,927 $1,178,273
========== ==========
Note 17 - Purchase commitments
At July 31, 2001, the Company had formalized commitments with various vendors
to purchase display units and associated display materials totaling
approximately $745,000 at different times throughout the fiscal year
ending July 31, 2002.
Note 18 - Accrued expenses
Accrued expenses consisted of the following at July 31, 2001 and 2000:
2001 2000
-------- --------
Salary and commissions payable $ 97,842 $ 75,109
Rent 11,942 -
Payroll taxes 5,606 10,761
Other accrued expenses 7,247 4,430
-------- --------
$ 122,637 $ 90,300
========= ========
Note 19 - Summarized Quarterly Data (Unaudited)
The following financial information reflects all normal recurring adjustments
that are, in the opinion of management, necessary for a fair statement of the
results of the interim periods. Summarized quarterly data for the years
ended July 31, 2001 and 2000 is as follows:
Quarter Ended
------------------------------------------------
October 31, January 31, April 30, July 31,
2000 2001 2001 2001
---------- ---------- ---------- ----------
Sales $1,667,223 $1,577,822 $1,831,948 $1,758,016
Gross Profit 794,577 735,393 717,297 646,593
Income (loss) before
income tax 100,510 104,668 (3,172) 13,586
Net income (loss) 64,482 69,447 (6,428) 11,256
Basic EPS .03 .04 .00 .00
Diluted EPS .03 .04 .00 .00
October 31, January 31, April 30, July 31,
1999 2000 2000 2000
----------- ---------- ---------- ----------
Sales $1,654,290 $1,762,310 $1,695,038 $1,482,501
Gross Profit 742,978 770,474 739,392 981,481
Income (loss) before
income taxes 65,266 78,983 52,598 (8,246)
Net income (loss) 65,266 78,983 52,598 (56,395)
Basic EPS .03 .04 .03 (.03)
Diluted EPS .03 .04 .03 (.03)
F20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized on the 25th day of
October 2001.
VARTECH SYSTEMS INC.
(Registrant)
By: /s/ C. Wayne Prater
_____________________________________
C. Wayne Prater, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 25th day of October 2001.
Signature Title
signed C. Wayne Prater President, Chief Executive Officer
C. Wayne Prater and Director
signed J. Keith Henderson Vice-President, President-Displays Division
J. Keith Henderson and Director
signed Daniel S. Gould Vice-President, Secretary and Director
Daniel S. Gould
signed Michele L. Gould Director
Michele L. Gould