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, 2003
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 issuer'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 12, 2003.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc.
Balance Sheets
January 31, July 31,
2003 2002
Unaudited Audited
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 129,817 $ 33,531
Accounts receivable - trade 636,216 667,554
Inventory 788,634 796,864
------------ ------------
Total current assets 1,554,667 1,497,949
Furniture and equipment 411,790 404,233
Leasehold improvements 12,145 12,145
Less: Accumulated depreciation (355,008) (316,027)
------------ ------------
68,927 100,351
Deposits 7,000 7,000
------------ ------------
Total assets $ 1,630,594 $ 1,605,300
============ ============
VarTech Systems Inc.
Balance Sheets
January 31, July 31,
2003 2002
Unaudited Audited
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - credit lines $ 251,429 $ 331,931
Accounts payable 298,657 276,693
Income tax payable 55,356 65,759
Other accrued expenses 88,411 104,287
------------ ------------
Total current liabilities 693,853 778,670
Deferred income taxes 8,058 10,346
------------ ------------
Total liabilities 701,911 789,016
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 371,822 259,423
------------ ------------
Total stockholders' equity 928,683 816,284
Total liabilities and stockholders' equity $ 1,630,594 $ 1,605,300
============ ============
VarTech Systems Inc.
Statements of Income
(Unaudited)
Quarter Ended Six Months Ended
January 31, January 31,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Sales $1,952,847 $1,504,940 $3,821,565 $3,068,921
Cost of sales 1,139,898 637,499 2,277,172 1,512,465
---------- ---------- ---------- ----------
Gross profit 812,949 867,441 1,544,393 1,556,456
Expenses 724,259 767,268 1,360,986 1,366,916
---------- ---------- ------------ ----------
Net income before income
taxes 88,690 100,173 183,407 189,540
Income taxes 33,677 41,403 71,008 77,767
---------- ---------- ------------ ----------
Net income $ 55,013 $ 58,770 $ 112,399 $ 111,773
Net income per common share $ .03 $ .03 $ .06 $ .06
Weighted average number of
common shares outstanding:
Basic 1,950,000 1,950,000 1,950,000 1,950,000
Diluted 1,950,000 1,950,000 1,950,000 1,950,000
VarTech Systems Inc.
Statements of Cash Flows
(Unaudited)
Quarter Ended Six Months Ended
January 31, January 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Cash flows from operating activities
Net income $ 55,013 $ 58,770 $112,399 $111,773
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 18,750 21,975 38,981 39,775
Deferred income taxes (1,144) (3,609) (2,288) (7,218)
Changes in operating assets
and liabilities:
(Increase) decrease in assets
Accounts receivable 52,614 (178) 31,338 6,811
Inventory 46,035 (160,433) 8,230 (124,149)
Increase (decrease) in liabilities
Accounts payable (160,637) 58,340 21,964 94,579
Income tax payable 5,679 - (10,403) -
Other accrued expenses 6,210 12,740 (15,876) 10,935
--------- -------- --------- --------
Net cash provided by (used in)
operating activities 22,520 (12,395) 184,345 132,506
--------- -------- --------- --------
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 (100,000) (51,948) (80,502) (103,142)
--------- -------- --------- --------
Net increase (decrease) in cash and
cash equivalents (77,480) (64,343) 96,286 26,954
Cash and cash equivalents,
beginning of period 207,297 170,103 33,531 78,806
--------- -------- --------- --------
Cash and cash equivalents,
end of period $129,817 $105,760 $129,817 $105,760
========= ========= ======== =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
DISCONTINUED OPERATIONS
In the fourth quarter of fiscal year ended July 2002, the Company discontinued
operations of the Consulting and Network segments. Revenue and pretax net
loss of these discontinued segments totaled $76,757 and $37,136, respectively,
for the quarter ended January 31, 2002. For the six months ended January 31,
2002, revenue and pretax net loss of the discontinued segments totaled
$253,303 and $7,292, respectively.
THREE MONTHS ENDED JANUARY 31, 2003
COMPARED TO JANUARY 31, 2002
The Company's revenues increased 29.8% to $1,952,847 in the second quarter
of fiscal 2003 as compared to $1,504,940 in the second quarter of fiscal 2002.
During the second quarter of fiscal 2003, the Company continued delivering its
new product line which has increased sales over 15% in the first six months of
fiscal 2003. The Company continues to see significant progress in this area
with it being the Company's primary focus for the future.
Gross profit was $812,949 for the second quarter ended January 31, 2003 as
compared to $867,441 in the same period ended January 31, 2002.
The Company's pretax income in the second quarter ended January 31, 2003 was
$88,690 as compared to $100,173 in the same period last fiscal year.
SIX MONTHS ENDED JANUARY 31, 2003
COMPARED TO JANUARY 31, 2002
The Company's revenues were $3,821,565, an increase of 24.5%, for the six
months ended January 31, 2003 as compared to $3,068,921 for the six months
ended January 31, 2002.
Gross profit was $1,544,393 for the six months ending January 31, 2003 as
compared to $1,556,456 in the same period ended January 31, 2002.
The Company's income before income taxes for the six months ending
January 31, 2003 was $183,407 as compared to $189,540 in the same period
last fiscal 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 January 31, 2003, the outstanding balance on these lines was $251,429.
The lines of credit and its current assets of $1,554,667 are deemed sufficient
to fund operations for the next twelve months. As of January 31, 2003, the
Company had $498,571 available under the lines of credit.
VARTECH SYSTEMS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JANUARY 31, 2003
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 12, 2003
C. Wayne Prater
President and Chief Executive Officer
signed/s/ C. Wayne Prater