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, 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 June 8, 2001.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc. and Subsidiaries
Balance Sheets
April 30, July 31,
2001 2000
Unaudited Audited
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 46,567 $ 15,138
Accounts receivable - trade 857,867 500,918
Accounts receivable - other 2,226 2,359
Accounts receivable - shareholder 53,290 22,500
Inventory 344,911 201,685
Prepaid expenses 986
Deferred income taxes 4,141 8,502
------------ ------------
Total current assets 1,309,988 751,102
------------ ------------
Furniture and equipment 524,934 523,445
Leasehold improvements 12,145 12,145
Less: Accumulated depreciation (287,873) (223,407)
------------ ------------
249,206 312,183
------------ ------------
Deposits 14,988 114,988
------------ ------------
Total assets $ 1,574,182 $ 1,178,273
============ ============
VarTech Systems Inc. and Subsidiaries
Balance Sheets
April 30, July 31,
2001 2000
Unaudited Audited
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - credit lines $ 389,810 $ 344,074
Accounts payable 354,885 199,616
Other accrued expenses 147,359 90,300
------------ ------------
Total current liabilities 892,054 633,990
Deferred income taxes 41,351 31,007
------------ ------------
Total liabilities 933,405 664,997
------------ ------------
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) 83,916 (43,585)
------------ ------------
Total stockholders' equity 640,777 513,276
------------ ------------
Total liabilities and stockholders' equity $ 1,574,182 $ 1,178,273
============ ============
VarTech Systems Inc. and Subsidiaries
Statements of Income
(Unaudited)
Quarter Ended Nine Months Ended
April 30, April 30,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Sales $1,831,948 $1,695,038 $5,076,992 $5,111,637
Cost of sales 1,114,651 955,646 2,829,726 2,858,794
---------- ---------- ---------- ----------
Gross profit 717,297 739,392 2,247,266 2,252,843
Operating expenses 720,469 686,794 2,045,256 2,161,264
---------- ---------- ---------- ----------
(Loss) income from
continuing operations (3,172) 52,598 202,010 91,579
Gain from settlement
of debt 105,267
---------- ---------- ---------- ----------
Net income before
income taxes (3,172) 52,598 202,010 196,846
Income taxes 3,256 74,509
---------- ---------- ---------- ----------
Net income (loss) $ (6,428) $ 52,598 $ 127,501 $ 196,846
Basic and diluted net
income per common share .00 .03 .06 .10
Weighted average number
of common shares
outstanding:
Basic 1,950,000 1,950,000 1,950,000 1,950,000
Diluted 1,990,833 1,988,750 1,990,833 1,988,750
VarTech Systems Inc. and Subsidiaries
Statements of Cash Flows
(Unaudited)
Quarter Ended Nine Months Ended
April 30, April 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Cash flows from operating activities
Net Income $ (6,428) $ 52,598 $ 127,501 $ 196,846
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 20,566 6,750 64,466 37,200
Gain from settlement of debt (105,267)
Deferred income taxes 4,901 14,707
Changes in operating assets
and liabilities:
Decrease (increase) in assets
Accounts receivable (106,158) 122,431 (356,816) 24,826
Inventory 17,457 (53,162) (143,226) (1,501)
Other assets 101,610 63,533 99,014 5,560
Increase (decrease) in
liabilities
Accounts payable 55,497 80,493 155,269 81,851
Accrued expenses (1,908) 2,404 57,058 (484)
Deferred lease expense (161) (483)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities 85,537 274,886 17,973 238,548
--------- --------- --------- ---------
Cash flows from investing activities
Purchase of furniture and
equipment (21,760) (19,508)
Net increase in account
receivable - shareholder (95,602) (30,790) (95,602)
Proceeds from sale of furniture
and equipment 20,270
--------- --------- --------- ---------
Net cash (used in) provided by
investing activities (95,602) (32,280) (115,110)
--------- --------- --------- ---------
Cash flows from financing activities
Net (payments on) proceeds from
lines of credit (52,622) (538) 45,736 954
Payments on stockholder loan (61,883)
Purchase of treasury stock (150,000) (150,000)
--------- --------- --------- ---------
Net cash (used in) provided by
financing activities (52,622) (212,421) 45,736 (149,046)
--------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents 32,915 (33,137) 31,429 (25,608)
Cash and cash equivalents,
beginning of period 13,652 36,989 15,138 29,460
--------- --------- --------- ---------
Cash and cash equivalents,
end of period $ 46,567 $ 3,852 $ 46,567 $ 3,852
========= ========= ========= =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2001
COMPARED TO APRIL 30, 2000
The Company's revenues increased to $1,831,948 in the third quarter of fiscal
2001 as compared to $1,695,038 in the third quarter of fiscal 2000. This
revenue increase is due to additions to the Company's sales team and effective
marketing of its new product lines.
Gross profit of $717,297 for the third quarter ended April 30, 2001 represented
39.2% of sales as compared to $739,392 which represented 43.6% of sales in the
same period ended April 30, 2000. The decrease in profit margin is due to a
higher percentage of market driven new product and flat panel sales which have
lower margins than remanufactured and repair sales.
The Company's pretax operating loss in the third quarter of fiscal 2001 was
$3,172 as compared to operating income of $52,598 in the same period of
fiscal 2000. The loss for the third quarter of fiscal 2001 includes a
$100,000 charge for outside consultant financial planning and advisory
services.
NINE MONTHS ENDED APRIL 30, 2001
COMPARED TO APRIL 30, 2000
The Company's revenues were $5,076,992 for the nine months ended
April 30, 2001 as compared to $5,111,637 for the nine months ended
April 30, 2000.
Gross profit of $2,247,266 for the nine months ended April 30, 2001 represented
44.2% of sales as compared to $2,252,843 which represented 44.1% of sales in
the same period ended April 30, 2000.
The Company's net income before income taxes for the nine months ended
April 30, 2001 was $202,010 as compared to income of $196,846 for the same
period of the previous year, which included a gain of $105,267
from a settlement of debt in fiscal 2000. Pretax net income for the
nine months ended April 30, 2001 reflects a $100,000 charge for outside
consultant financial planning and advisory services.
LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit totaling $600,000 which it uses for
short-term borrowing to acquire inventory and finance accounts receivable.
On April 30, 2001, the outstanding balance on these lines was $389,810. The
lines of credit and its current assets of $1,309,988 are deemed sufficient to
fund operations for the next twelve months. As of April 30, 2001, the Company
had $210,190 available under the lines of credit.
VARTECH SYSTEMS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
APRIL 30, 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: June 8, 2001
C. Wayne Prater
President and Chief Executive Officer
signed/s/ C. Wayne Prater