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, 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.
1,967,100 shares of common stock, $.001 par value, (the issuer's only class of
common stock), were outstanding as of December 4, 2003.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VarTech Systems Inc.
Balance Sheets
October 31, July 31,
2003 2003
Unaudited Audited
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 73,594 $ 115,368
Accounts receivable - trade 691,574 634,023
Inventory 879,294 923,475
------------ ------------
Total current assets 1,644,462 1,672,866
Furniture and equipment 452,500 452,500
Leasehold improvements 12,145 12,145
Less: Accumulated depreciation (377,515) (365,015)
------------ ------------
87,130 99,630
Deposits 7,000 7,000
------------ ------------
Total assets $ 1,738,592 $ 1,779,496
============ ============
VarTech Systems Inc.
Balance Sheets
October 31, July 31,
2003 2003
Unaudited Audited
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - credit lines $ 126,429 $ 76,430
Current portion - note payable 7,706 7,706
Accounts payable 347,229 339,731
Income tax payable 61,588 30,632
Other accrued expenses 96,739 131,754
------------ ------------
Total current liabilities 639,691 586,253
Deferred income taxes 15,947 17,913
Note payable, less current portion 27,468 29,528
------------ ------------
Total liabilities 683,106 633,694
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; 1,967,100 and
2,100,000 shares outstanding 2,100 2,100
Capital in excess of par value 704,761 704,761
Treasury stock; 132,900 shares at cost (167,800) -
Retained earnings 516,425 438,941
------------ ------------
Total stockholders' equity 1,055,486 1,145,802
Total liabilities and stockholders' equity $ 1,738,592 $ 1,779,496
============ ============
VarTech Systems Inc.
Statements of Income
(Unaudited)
Quarter Ended
October 31,
2003 2002
---------- ----------
Sales $2,007,849 $1,868,718
Cost of sales 1,175,143 1,137,274
---------- ----------
Gross profit 832,706 731,444
Expenses 702,789 636,727
---------- ----------
Net income before income taxes 129,917 94,717
Income taxes 52,433 37,331
---------- ----------
Net income $ 77,484 $ 57,386
Basic and diluted net income
per common share $ .04 $ .03
Weighted average number of
common shares outstanding:
Basic 2,008,187 1,950,000
Diluted 2,008,187 1,950,000
VarTech Systems Inc.
Statements of Cash Flows
(Unaudited)
Quarter Ended
October 31,
2003 2002
--------- ---------
Cash flows from operating activities
Net income $ 77,484 $ 57,386
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 12,500 20,231
Deferred income taxes (1,966) (1,144)
Changes in operating assets
and liabilities:
(Increase) decrease in assets
Accounts receivable (57,551) (21,276)
Inventory 44,181 (37,805)
Increase (decrease) in liabilities
Accounts payable 7,498 182,601
Accrued expenses (4,059) (38,168)
--------- --------
Net cash provided by
operating activities 78,087 161,825
--------- ---------
Cash flows from investing activities
Purchase of property and
equipment - (7,557)
--------- ---------
Net cash used in
investing activities - (7,557)
--------- ---------
Cash flows from financing activities
Net proceeds from lines of credit 49,999 19,498
Payments on note payable (2,060) -
Purchase of treasury stock (167,800) -
--------- ---------
Net cash provided by (used in)
financing activities (119,861) 19,498
--------- ---------
Net increase (decrease) in cash and
cash equivalents (41,774) 173,766
Cash and cash equivalents,
beginning of period 115,368 33,531
--------- ---------
Cash and cash equivalents,
end of period $ 73,594 $207,297
========== =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2003
COMPARED TO OCTOBER 31, 2002
The Company's revenues increased by 7.4% to $2,007,849 in the first quarter
ended October 31, 2003 as compared to $1,868,718 in the first quarter of the
prior year.
Gross profit of $832,706 for the first quarter ended October 31, 2003
represent 41.5% of sales as compared to $731,444 which represented 39.1% of
sales in the same period ended October 31, 2002.
The Company's net income before income taxes in the first quarter was $129,917
as compared to before tax net income of $94,717 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, 2003, the outstanding balance on these lines was $126,429.
The lines of credit and current assets of $1,644,462 are deemed sufficient
to fund operations for the next twelve months. As of October 31, 2003, the
Company had $623,571 available under the lines of credit.
VARTECH SYSTEMS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
OCTOBER 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 4a. CONTROLS AND PROCEDURES
Our chief executive officer and chief financial officer, with the
participation of management, have evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934) as of a date within 90 days prior to
the filing of this quarterly report on Form 10-Q. Based on their evaluation,
they have concluded that our disclosure controls and procedures (1) are
effective in timely alerting them to material information relating to VarTech
Systems Inc. required to be disclosed in our periodic Securities and Exchange
Commission filings and (2) are adequate to ensure that information required to
be disclosed by us in the reports filed or submitted by us under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of the
evaluation described above.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) NONE
(b) NONE
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, C. Wayne Prater, certify that:
I have reviewed this quarterly report on Form 10-Q of VarTech Systems Inc.;
Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us
by others, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design of operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
The registrant's other certifying officers and I have indicated in the quarterly
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE: December 4, 2003
By: C. Wayne Prater
Chief Executive Officer and
Chief Financial Officer
signed/s/ C. Wayne Prater
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of VarTech Systems Inc.
(the Company) for the period ended October 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
C. Wayne Prater, Chief Executive Officer and Chief Financial Officer of the
Company, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1) the Report fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities and Exchange Act of 1934; and
2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company for the period covered by the Report.
By: C. Wayne Prater
Chief Executive Officer and
Chief Financial Officer
signed/s/ C. Wayne Prater
Date: December 4, 2003
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 4, 2003
C. Wayne Prater
President and Chief Executive Officer
signed/s/ C. Wayne Prater