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, 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 70809-4115
(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 March 9, 2001.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc. and Subsidiaries
Balance Sheets
January 31, July 31,
2001 2000
Unaudited Audited
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 13,652 $ 15,138
Accounts receivable - trade 752,134 500,918
Accounts receivable - other 1,801 2,359
Accounts receivable - shareholder 53,290 22,500
Inventory 362,368 201,685
Prepaid expenses 2,596
Deferred income taxes 5,595 8,502
------------ ------------
Total current assets 1,191,436 751,102
Furniture and equipment 524,934 523,445
Leasehold improvements 12,145 12,145
Less: Accumulated depreciation (267,307) (223,407)
Deposits 114,988 114,988
------------ ------------
Total assets $ 1,576,196 $ 1,178,273
============ ============
VarTech Systems Inc. and Subsidiaries
Balance Sheets
January 31, July 31,
2001 2000
Unaudited Audited
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - credit lines $ 442,432 $ 344,074
Accounts payable 299,388 199,616
Other accrued expenses 149,267 90,300
------------ ------------
Total current liabilities 891,087 633,990
Deferred income taxes 37,903 31,007
------------ ------------
Total liabilities 928,990 664,997
Common stock, 100,000,000 shares,
$.001 par authorized; 2,100,000
shares issued; 1,950,000 shares
outstanding 2,100 2,100
Capital in excess of par value 704,761 704,761
Treasury stock; 150,000 common stock shares (150,000) (150,000)
Retained earnings (deficit) 90,345 (43,585)
------------ ------------
Total stockholders' equity 647,206 513,276
Total liabilities and stockholders' equity $ 1,576,196 $ 1,178,273
============ ============
VarTech Systems Inc. and Subsidiaries
Statements of Income
(Unaudited)
Quarter Ended Six Months Ended
January 31, January 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Sales $1,577,822 $1,762,310 $3,245,045 $3,416,599
Cost of sales 842,429 991,836 1,715,075 1,903,148
---------- ---------- ---------- ----------
Gross profit 735,393 770,474 1,529,970 1,513,451
Operating expenses 630,725 796,758 1,324,787 1,474,470
---------- ---------- ---------- ----------
Income (loss) from
continuing operations 104,668 (26,284) 205,183 38,981
Gain from settlement
of debt 105,267 105,267
---------- ---------- ---------- ----------
Net income before
income taxes 104,668 78,983 205,183 144,248
Income taxes 35,221 71,254
---------- ---------- ---------- ----------
Net income $ 69,447 $ 78,983 $ 133,929 $ 144,248
Basic and diluted net
income per common share $ .04 $ .04 $ .07 $ .07
Weighted average number
of common shares
outstanding:
Basic 1,950,000 2,100,000 1,950,000 2,100,000
Diluted 1,990,833 2,100,000 1,990,833 2,100,000
VarTech Systems Inc. and Subsidiaries
Statements of Cash Flows
(Unaudited)
Quarter Ended Six Months Ended
January 31, January 31,
2001 2000 2001 2000
--------- --------- --------- ---------
Cash flows from operating activities
Net income $ 69,447 $ 78,983 $ 133,929 $ 144,248
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 21,950 15,450 43,900 30,450
Gain from settlement of debt (105,267) (105,267)
Deferred income taxes 4,901 9,803
Changes in operating assets
and liabilities:
Decrease (increase) in assets
Accounts receivable (88,752) 31,469 (250,657) (97,605)
Inventory (5,082) 2,862 (160,683) 51,661
Other assets (2,596) (61,883) (2,596) (57,973)
Increase (decrease) in
liabilities
Accounts payable 9,000 31,291 99,773 1,358
Accrued expenses 31,240 (12,034) 58,967 (2,888)
Deferred revenue (25,000)
Deferred lease expense (322) (322)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities 40,108 (44,451) (67,564) (36,338)
--------- --------- --------- ---------
Cash flows from investing activities
Purchase of property and
equipment (950) (21,760) (19,508)
Net increase in account
receivable - shareholder (2,290) (30,790)
Proceeds from sale of furniture 20,270 20,270
and equipment
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities 17,980 (950) (32,280) (19,508)
--------- --------- --------- ---------
Cash flows from financing activities
Net (payments on) proceeds from
lines of credit (52,387) 6,051 98,358 1,492
Net increase in stockholder loan 61,883 61,883
--------- --------- --------- ---------
Net cash (used in) provided by
financing activities (52,387) 67,934 98,358 63,375
--------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents 5,701 22,533 (1,486) 7,529
Cash and cash equivalents,
beginning of period 7,951 14,456 15,138 29,460
--------- --------- --------- ---------
Cash and cash equivalents,
end of period $ 13,652 $ 36,989 $ 13,652 $ 36,989
========= ========= ========= =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2001
COMPARED TO JANUARY 31, 2000
The Company's revenues decreased by 10.5% to $1,577,822 in the second quarter
of fiscal 2001 as compared to $1,762,310 in the second quarter of fiscal 2000.
The Company decided during the first quarter of fiscal 2001 to continue to
reduce its sales in the solutions and integration unit due to the lack of
qualified technical personnel available in its market area. The Company will
continue to operate this unit for a few select customers and for inhouse
support.
Additionally, the Company's network division is generating revenue at a rate of
approximately 50% of last fiscal year's volume. This results from a
concentration and consolidation in this division to primarily the Ireland and
United Kingdom markets. For the foreseeable future, the Company's focus for
this division will continue to be in these areas.
During the second quarter of fiscal 2001, the Company's displays division
continued delivering its new product line which has increased sales over 40% in
the first six months of fiscal 2001. The Company continues to see significant
progress in this area with it being the Company's primary focus for the future,
representing over 80% of its sales volume.
Gross profit of $735,393 for the second quarter ended January 31, 2001
represented 46.6% of sales as compared to $770,474 which represented 43.7% of
sales in the same period ended January 31, 2000.
The Company's income from continuing operations for the second quarter ended
January 31, 2001 was $104,668 as compared to a loss of $26,284 in the same
period last fiscal year. This was due to greater profit margins and a
reduction in operating expenses as a percentage of sales.
SIX MONTHS ENDED JANUARY 31, 2001
COMPARED TO JANUARY 31, 2000
The Company's revenues were $3,245,045 for the six months ended
January 31, 2001 as compared to $3,416,599 for the six months ended
January 31, 2000.
Gross profit of $1,529,970 for the six months ending January 31, 2001
represented 47.1% of sales as compared to $1,513,451 which represented 44.3%
of sales in the same period ended January 31, 2000.
The Company's net income before income taxes for the six months ending
January 31, 2001 was $205,183 as compared to $144,248 in the same period last
fiscal year with last year's income including a one-time gain of $105,267.
LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit totaling $550,000 which it uses for short-term
borrowing to acquire inventory and finance accounts receivable. On
January 31, 2001, the outstanding balance on these lines was $442,432. The
lines of credit and current assets of $1,191,436 are deemed sufficient to fund
operations for the next twelve months. As of January 31, 2001, the Company
had $107,568 available under the lines of credit.
VARTECH SYSTEMS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JANUARY 31, 2001
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: March 9, 2001
C. Wayne Prater
President and Chief Executive Officer
signed/s/ C. Wayne Prater
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
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27. Financial Data Schedule Filed herewith electronically