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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, 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 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 11, 2003.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc.
Balance Sheets
April 30, July 31,
2003 2002
(Unaudited) (Audited)
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 119,318 $ 33,531
Accounts receivable - trade 904,451 667,554
Inventory 736,458 796,864
------------ ------------
Total current assets 1,760,227 1,497,949
------------ ------------
Furniture and equipment 411,790 404,233
Leasehold improvements 12,145 12,145
Less: Accumulated depreciation (373,508) (316,027)
------------ ------------
50,427 100,351
------------ ------------
Deposits 7,000 7,000
------------ ------------
Total assets $ 1,817,654 $ 1,605,300
============ ============
VarTech Systems Inc.
Balance Sheets
April 30, July 31,
2003 2002
(Unaudited) (Audited)
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - credit lines $ 251,429 $ 331,931
Accounts payable 442,329 276,693
Income tax payable 57,794 65,759
Other accrued expenses 97,367 104,287
------------ ------------
Total current liabilities 848,919 778,670
Deferred income taxes 6,914 10,346
------------ ------------
Total liabilities 855,833 789,016
------------ ------------
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 404,960 259,423
------------ ------------
Total stockholders' equity 961,821 816,284
------------ ------------
Total liabilities and stockholders' equity $ 1,817,654 $ 1,605,300
============ ============
VarTech Systems Inc.
Statements of Income
(Unaudited)
Quarter Ended Nine Months Ended
April 30, April 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Sales $1,969,460 $1,684,030 $5,791,025 $4,752,951
Cost of sales 1,187,733 933,869 3,464,906 2,446,334
---------- ---------- ---------- ----------
Gross profit 781,727 750,161 2,326,119 2,306,617
Expenses 726,296 730,165 2,087,282 2,097,081
---------- ---------- ---------- ----------
Net income before
income taxes 55,431 19,996 238,837 209,536
Income taxes 22,294 5,533 93,302 83,301
---------- ---------- ---------- ----------
Net income $ 33,137 $ 14,463 $ 145,535 $ 126,235
Basic and diluted net
income per
common share .02 .01 .08 .07
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 Nine Months Ended
April 30, April 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Cash flows from operating activities
Net Income $ 33,137 $ 14,463 $ 145,536 $126,235
Adjustments to net cash provided
by (used in) operating activities:
Depreciation 18,500 21,975 57,481 61,750
Deferred income taxes (1,144) (3,609) (3,432) (10,827)
Changes in operating assets
and liabilities:
Decrease (increase) in assets
Accounts receivable (268,235) 27,608 (236,897) 34,420
Inventory 52,176 (217,016) 60,406 (341,165)
Other assets - 4,500 - 4,500
Increase (decrease) in
liabilities
Accounts payable 143,673 76,675 165,636 171,254
Other accrued expenses 8,956 29,336 (6,920) (15,703)
Income tax payable 2,438 (21,259) (7,964) 34,715
--------- --------- --------- --------
Net cash provided by (used in)
operating activities (10,499) (67,327) 173,846 65,179
--------- --------- --------- --------
Cash flows from investing activities
Purchase of property and
equipment - (100) (7,557) (2,510)
Net increase in loan receivable - (97,320) - (97,320)
--------- --------- --------- --------
Net cash used in
investing activities - (97,420) (7,557) (99,830)
--------- --------- --------- --------
Cash flows from financing activities
Net (payments on) proceeds from
lines of credit - 148,184 (80,502) 45,042
--------- --------- --------- --------
Net cash (used in) provided by
financing activities - 148,184 (80,502) 45,042
--------- --------- --------- --------
Net increase (decrease) in cash
and cash equivalents (10,499) (16,563) 85,787 10,391
Cash and cash equivalents,
beginning of period 129,817 105,760 33,531 78,806
--------- --------- --------- --------
Cash and cash equivalents,
end of period $ 119,318 $ 89,197 $119,318 $89,197
========== ========= ========= ========
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 for these discontinued segments totaled $56,307 and $51,038,
respectively, for the quarter ended April 30, 2002. For the nine months
ended April 30, 2002, revenue and pretax net loss of the discontinued segments
totaled $309,610 and $58,331, respectively.
THREE MONTHS ENDED APRIL 30, 2003
COMPARED TO APRIL 30, 2002
The Company's revenues increased to $1,969,460 in the third quarter of fiscal
2003 as compared to $1,684,030 in the third quarter of fiscal 2002. This
revenue increase is due to the continued increased sales of new products.
Gross profit of $781,727 for the third quarter ended April 30, 2003 represented
39.7% of sales as compared to $750,161 which represented 44.5% of sales in the
same period ended April 30, 2002. The decrease in profit margin is due to an
increase in display sales of new products which has a lower margin than repairs
and remanufacture.
The Company's pretax operating income in the third quarter of fiscal 2003 was
$55,431 as compared to pretax income of $19,996 in the same period of fiscal
2002.
NINE MONTHS ENDED APRIL 30, 2003
COMPARED TO APRIL 30, 2002
The Company's revenues were $5,791,025 for the nine months ended
April 30, 2003 as compared to $4,752,951 for the nine months ended
April 30, 2002.
Gross profit of $2,326,119 for the nine months ended April 30, 2003 represented
40.2% of sales as compared to $2,306,617 which represented 48.5% of sales in
the same period ended April 30, 2002.
The Company's net income before income taxes for the nine months ended
April 30, 2003 was $238,837 as compared to income of $209,536 for the same
period of the previous 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 April 30, 2003, the outstanding balance on these lines was $251,429. The
lines of credit and its current assets of $1,760,227 are deemed sufficient to
fund operations for the next twelve months. As of April 30, 2003, the Company
had $498,571 available under the lines of credit.
VARTECH SYSTEMS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
APRIL 30, 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: June 11, 2003
C. Wayne Prater
President and Chief Executive Officer
signed/s/ C. Wayne Prater