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 October 31, 2002
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 December 12, 2002.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc.
Balance Sheets
October 31, July 31,
2002 2002
Unaudited Audited
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 207,297 $ 33,531
Accounts receivable - trade 688,830 667,554
Inventory 834,669 796,864
------------ ------------
Total current assets 1,730,796 1,497,949
Furniture and equipment 411,790 404,233
Leasehold improvements 12,145 12,145
Less: Accumulated depreciation (336,258) (316,027)
------------ ------------
87,677 100,351
Deposits 7,000 7,000
------------ ------------
Total assets $ 1,825,473 $ 1,605,300
============ ============
VarTech Systems Inc.
Balance Sheets
October 31, July 31,
2002 2002
Unaudited Audited
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - credit lines $ 351,429 $ 331,931
Accounts payable 459,294 276,693
Income tax payable 49,677 65,759
Other accrued expenses 82,201 104,287
------------ ------------
Total current liabilities 942,601 778,670
Deferred income taxes 9,202 10,346
------------ ------------
Total liabilities 951,803 789,016
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 shares
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 316,809 259,423
------------ ------------
Total stockholders' equity 873,670 816,284
Total liabilities and stockholders' equity $ 1,825,473 $ 1,605,300
============ ============
VarTech Systems Inc.
Statements of Income
(Unaudited)
Quarter Ended
October 31,
2002 2001
---------- ----------
Sales $1,868,718 $1,563,981
Cost of sales 1,137,274 874,966
---------- ----------
Gross profit 731,444 689,015
Expenses 636,727 599,648
---------- ----------
Net income before income taxes 94,717 89,367
Income taxes 37,331 36,365
---------- ----------
Net income $ 57,386 $ 53,002
Basic and diluted net income
per common share $ .03 $ .03
Weighted average number of
common shares outstanding:
Basic 1,950,000 1,950,000
Diluted 1,950,000 1,950,000
VarTech Systems Inc.
Statements of Cash Flows
(Unaudited)
Quarter Ended
October 31,
2002 2001
--------- ---------
Cash flows from operating activities
Net income $ 57,386 $ 53,002
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 20,231 17,800
Deferred income taxes (1,144) (3,609)
Changes in operating assets
and liabilities:
Increase (decrease) in assets
Accounts receivable (21,276) 6,990
Inventory (37,805) 36,284
Increase (decrease) in liabilities
Accounts payable 182,601 36,239
Accrued expenses (38,168) (1,805)
----------- --------
Net cash provided by (used in)
operating activities 161,825 144,901
----------- ---------
Cash flows from investing activities
Purchase of property and
equipment (7,557) (2,410)
--------- ---------
Net cash used in
investing activities (7,557) (2,410)
--------- ---------
Cash flows from financing activities
Net (payments on) proceeds from
lines of credit 19,498 (51,194)
--------- ---------
Net cash provided by (used in)
financing activities 19,498 (51,194)
--------- ---------
Net increase (decrease) in cash and
cash equivalents 173,766 91,297
Cash and cash equivalents,
beginning of period 33,531 78,806
--------- ---------
Cash and cash equivalents,
end of period $ 207,297 $170,103
============ =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
DISCONTINUED OPERATIONS
In the 4th Quarter of fiscal year ended July 2002, the company discontinued
operations of the Consulting and Network segments. Revenue and pre-tax net
income of these discontinued segments totaled $176,546 and $29,844,
respectively, for the quarter ended October 31, 2001.
THREE MONTHS ENDED OCTOBER 31, 2002
COMPARED TO OCTOBER 31, 2001
The Company's revenues increased by 19.5% to $1,868,718 in the first quarter
ended October 31, 2002 as compared to $1,563,981 in the first quarter of the
prior year.
Gross profit of $731,444 for the first quarter ended October 31, 2002
represented 39.1% of sales as compared to $689,015 which represented 44% of
sales in the same period ended October 31, 2001.
The Company's net income before income taxes in the first quarter was $94,717
as compared to before tax net income of $89,367 in the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit totaling $750,000 which it uses for
short-term borrowing to acquire inventory and finance accounts receivable.
On October 31, 2002, the outstanding balance on these lines was $351,429.
The lines of credit and current assets of $1,730,796 are deemed sufficient
to fund operations for the next twelve months. As of October 31, 2002, the
Company had $398,571 available under the lines of credit.
VARTECH SYSTEMS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
OCTOBER 31, 2002
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: December 12, 2002
C. Wayne Prater
President and Chief Executive Officer
signed/s/ C. Wayne Prater