SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
From the transition period from ___________ to ____________.
Commission File Number 0-21955
M&A WEST, INC.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1356427
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
583 San Mateo Avenue, San Bruno, CA 94066
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(Address of principal executive offices)
(650) 588-2678
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days:
Yes X No
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Class Shares Outstanding Date
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Common, no par value 11,122,758 October 19, 2000
<PAGE>
M&A WEST, INC.
FORM 10-QSB
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
Condensed Balance Sheets - August 31, 2000 and May 31, 2000........... 1
Condensed Statements of Operations - For the three months
ended August 31, 2000 and 1999........................................ 2
Condensed Statements of Cash Flows - For the three months ended
August 31, 2000 and 1999.............................................. 4
Notes to Condensed Financial Statements............................... 5
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 9
PART II - OTHER INFORMATION...................................................11
SIGNATURES....................................................................12
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
M & A WEST,INC.
Balance Sheet
<TABLE>
August 31, May 31,
------------ ---------
<S> <C> <C>
2000 2000
ASSETS
Current Assets
Cash and equivalents 488,475 1,151,546
Accounts receivable-clients 52,761 -
Marketable securities held for trading 2,263,350 810,247
Marketable securities available for sale 11,118,750 22,981,842
Employee advances 12,234 -
Prepaid taxes 400 -
Loans Receivable 159,166 -
Other Current Assets - 193,222
Total current assets $ 14,095,136 25,136,857
Other Assets
Intangible assets other thangoodwill,net
of amortization 2,224,440 2,348,020
Property and equipment,net
of depreciation 75,406 79,410
Equity Investments 911,212 903,051
Goodwill, net of amortization 1,170,000 1,185,000
Total Assets $ 18,476,194 29,652,338
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 110,463 27,044
Income taxes payable 2,704,949 3,145,000
Deferred income taxes 2,238,649 6,477,487
Deferred revenue 729,167 854,167
Total current liabilities 5,783,228 10,503,698
Stockholders' Equity
Common stock,no par value,100,000,000 shares
authorized 11,122,758 issued and outstanding 4,870,298 4,870,298
Preferred stock, no par value, 10,000,000 shares
authorized, no shares issued and outstanding - -
Retained earnings 2,247,872 2,127,921
Accumulated other comprehensive income 5,574,796 12,150,421
Total equity 12,692,966 19,148,640
Total Liabilities and Equity $ 18,476,194 29,652,338
</TABLE>
The accompanying notes are an integral part of the financial statements
3
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M & A WEST,INC.
Statement of Operations and Comprehensive Income
<TABLE>
For the three months ended
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August 31, 2000 August 31, 1999
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<S> <C> <C>
Revenue
Consulting Revenue $326,461 $3,458,611
Internet Service Provider Income 250,298 -
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Total revenue 576,759 3,458,611
Cost of Sales-Internet Service Provider 145,314 -
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Gross Profit 431,445 3,458,611
Selling,General and Administrative Expenses
Advertising 100,793 107,417
Employee Business Expenses 40,493 77,437
Consultants 19,659 76,111
Payroll 334,943 109,782
Other selling,general and
administrative expenses 489,367 147,433
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Total selling,general and
administrative expenses 985,255 518,180
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Income from operations (553,810) 2,940,431
Other income (expense)
Trading gains (losses) 3,530 66,654
Interest income 1,510 542
Unrealized gains and losses 549,386 -
Equity in loss of unconsolidated subsidiary (110,689) (37,370)
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Gain on sale of subsidiary - -
Total other income (expense) 443,737 29,826
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Net income before taxes (110,073) 2,970,257
Income tax expense/benefit 230,024 (1,188,000)
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Net income 119,951 1,782,257
========= ==========
Other comprehensive income
Unrealized gains (losses) on
available-for-sale securities
net of tax. (10,959,375) -
---------- ----------
Comprehensive income $(10,839,424) $1,782,257
========== ==========
Net income per share $ 0.010 $0.162
========== ==========
Net comprehensive income per share $(0.99) -
========== ==========
Number of shares outstanding 11,122,758 11,000,000
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
M & A WEST,INC.
Consolidated Statement of Cash Flows
<TABLE>
For the three months ended August 31
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net income (loss) $119,951 $1,782,257
Adjustments to reconcile net income to
net cash flows provided by
(used in) operating activities:
Unrealized (gain) loss on investments (558,786) (3,694,309)
Trading gains (3,530) 173,292
Equity in loss of unconsolidated subsidiaries 110,689 37,370
Depreciation and amortization 142,584 -
Deferred Income Taxes 144,912 -
Accounts Receivable (52,761) -
(Increase) decrease in operating assets:
Other current assets 21,422 -
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 83,419 90,400
Income taxes payable (440,051) 909,209
Deferred revenue (125,000) 1,078,844
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Net cash provided by (used in) operating activities (557,151) 377,063
========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investment sales 12,930
Purchase of equipment - (2,838)
Purchase of investments (118,850) (1,334,613)
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Net cash used by investing activities (105,920) (1,337,451)
========== ===========
Net decrease in cash and equivalents (663,071) (960,388)
Cash and cash equivalents, beginning of period 1,151,546 1,141,813
---------- -----------
Cash and cash equivalents, end of period $488,475 $181,425
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
M & A West, Inc.
NOTES TO FINANCIAL STATEMENTS
August 31, 2000
1. Summary of Significant Accounting Policies
Description of business
M & A West, Inc. is primarily engaged in providing management consulting
services to public companies. During fiscal 2000 the company also became an
internet service provider. On May 12 1999, M&A West, Inc., a Nevada Corporation,
underwent a stock transfer and exchange with Buffalo Capital IV, Ltd, a publicly
traded shell company, M&A West, Inc. merged with Buffalo Capital IV, Ltd.
Immediately after the transaction, Buffalo Capital IV, Ltd. Changed its name to
M&A West, Inc. All references to the Company in these financial statements refer
to M& A West, Inc. the Nevada corporation, prior to May 12, 1999, and to the
merged entity from May 12, 1999 forward.
Basis of accounting
The accompanying financial statements of M & A West, Inc. are prepared
using the accrual basis of accounting in which revenues are recognized when
earned, and expenses are recognized when incurred.
Marketable Securities and Investments
Investments in marketable equity securities held for trading purposes are
presented at market value, with realized and unrealized gains and losses on the
investments recognized in earnings during the period incurred. Investments in
marketable equity securities available for sale are presented at market value,
with unrealized gains and losses, after tax, recorded as a separate component of
stockholders' equity. Equity investments are investments that the Company has
significant influence but not voting control and are accounted for at original
cost, adjusted for the Company's share of the investees' gains and losses.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during each
period presented. Actual results could differ from these estimates.
Property and Equipment
The Company's property and equipment, consisting of computers and equipment
supporting the administrative function, are stated at cost, net of accumulated
depreciation. Depreciation of property and equipment is calculated using the
straight line method over estimated useful lives ranging from five to seven
years.
Advertising
Advertising costs are expensed as incurred.
Cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Net income (loss) per share
Basic net income (loss) per share is based on the weighted average
outstanding common shares.
Goodwill
Goodwill represents the excess of the cost of the assets acquired from
SierraNet.com over the fair value of the assets acquired and is being amortized
on the straight-line method over fifteen years (See Note 11).
Intangible Assets Other Than Goodwill
Web sites acquired in the purchase of Investor Packages and Market
Awareness Consultants and a customer list acquired from SierraNet.com are being
amortized on the straight-line method over five years (see Note 11).
6
<PAGE>
Income taxes
Deferred taxes are provided for all significant differences between the
financial statement and tax basis of assets and liabilities. These differences
relate primarily to unrealized gains and losses on investments, the California
franchise tax, amortization of intangible assets, and depreciation.
Recently Enacted Accounting Standards
Statement of Financial Accounting Standards (SFAS) No.131, "Disclosures
about Segments of an Enterprise and Related Information", SFAS No. 132,
"Employer's Disclosure about Pensions and Other Postretirement Benefits", SFAS
No. 133 (as amended by SFAS No. 137 and 138), "Accounting for Mortgage-Backed
Securities", and SFAS No. 135, "Rescission of FASB Statement No. 75 and
Technical Corrections" were recently issued. SFAS No. 131,132, 133 (as amended),
134 and 135 have no current applicability to the company or their effect on the
financial statements would not have been significant.
Reclassifications
Certain items in the 1999 financial statements have been reclassified to
conform to the 2000 presentation. Such reclassifications have no effect on
either net income or stockholders' equity.
2. Related Party Transactions
--------------------------
For the period ended August 31, 2000, the Company's offices were leased
from the Company's Chief Executive Officer on a month-to-month basis for a
monthly payment of $ 1,811.
3. Stockholders' Equity
--------------------
Authorized capital
The Company's capital consists of 100,000,000 authorized common shares, no
par value, of which 11,122,758 shares were issued and outstanding at August 31,
2000.
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock, with rights and privileges to be determined by the Board of Directors. No
preferred shares were issued and outstanding at August 31, 2000.
4. Income Taxes
------------
The Company has recorded a deferred tax liability for the effects of
unrealized gains on marketable equity securities which are deductible for tax
purposes only to the extent of realized gains. The Company's provision for
income tax is calculated using a flat rate of 40%.
5. Investments
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Equity Investments
The Company has a 100% investment in Shakai Racing, Inc. at August 31, 2000
which is accounted for using the equity method, whereby the Company's investment
is increased by gains and additional investments, and decreased by losses and
distributions. The following is a summary of the financial position and
operating results of Shakai Racing as of August 31, 2000:
Current assets $ 28,430
Property and equipment 97,625
Other assets 0
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126,054
Total liabilities 985
Total stockholders' equity $125,069
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Total revenue $ 15,939
Net loss $ 14,268
5. Investments (continued)
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The Company has a 25% investment in Ronlan Entertainment, Inc. at August 31,2000
which is accounted for using the equity method, as discussed above. The
following is a summary of the financial position and operating results of Ronlan
Entertainment as of August 31, 2000.
7
<PAGE>
Current assets $ 2,720
Property & Equipment 1,450
Other assets 0
$ 94,170
Total liabilities 69,791
Total stockholders equity 66,738
$ 114,529
Total revenue $ 35,738
Net loss $ 52,942
Investments in other equity securities
The Company has invested in equity securities of companies for which no
established trading market exists at August 31, 2000. These securities are
stated at cost that does not exceed the estimated net realizable value.
6. Fixed Assets
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The Company's property and equipment consists of the following at August
31, 2000:
Computers $ 71,948
Office furniture 27,550
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Total 99,498
less accumulated depreciation 24,092
$ 75,406
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Depreciation expense for the quarter ended August 31, 2000 totaled $ 4,004.
7. Other Comprehensive Income
--------------------------
On October 15,1999 a Special Meeting of Stockholders of Virtuallender.com
(VLDC) was held wherein VLDC was authorized to acquire substantially all of the
assets and/or stock of University Mortgage Corp., a Maryland corporation ("UMI")
in a stock exchange agreement. The overall effect of this transaction was a
reduction in ownership percentage of M&A West, Inc. from 21% to 18%. Prior
financial reports reflected accounting for the Company's interest in VLDC using
the equity method, whereby the Company' investment is increased by gains and
additional investments, and decreased by losses and distributions. These
securities are treated as available for sale securities.
In January 2000, Digital Bridge, Inc. (Digital) merged with Black Stallion
Management, Inc. (a publicly traded company) in a stock for stock transaction.
After the merger, there are approximately 27,000,000 shares issued and
outstanding of which the Company holds a 17% interest. The Company is no longer
reporting this investment under the equity method but is reporting its
investment as marketable securities available for sale. Unrealized losses on the
VLDC and Digital securities for the three months ended August 31, 2000 amounted
to $10,959,375.
Changes in other comprehensive income are shown below:
Before-Tax Tax or Net of Tax
Amount Benefit Amount
---------- --------- ----------
Unrealized losses on available
for sale securities $12,150,421 $6,575,625 $5,574,796
8
<PAGE>
There are no reclassifications or adjustments.
8. BRANCHES
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The Company has opened offices in Tinton Falls, New Jersey, Atlanta,
Georgia and Willamsport, Pennsylvania. The effect of these branch offices is
recorded in the attached financial report. In October, 2000, the Company closed
the Trinton Falls, New Jersey and Atlanta, Georgia offices.
9. DIRECTORS AND OFFICERS LIABILITY
--------------------------------
The Company has secured directors and officers liability insurance with
National Union Insurance. Coverage for each director and officer is $5,000,000.
The annual premium is $ 50,000.
10. INFORMATION CONCERNING CONCENTRATIONS OF CREDIT RISK
----------------------------------------------------
Financial accounting standards require certain disclosures concerning
concentrations of credit risk, which are summarized below.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of investments and cash and
cash equivalents. The Company typically maintains cash deposits in excess of
amounts insured. As a result, the potential amount of credit risk pertaining to
cash deposits will vary throughout the year depending on the level of deposits
versus amounts insured.
Cash equivalents are generally limited to money market accounts.
9
<PAGE>
Item 2. MANAGEMENT' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company' actual results could differ
materially from those set forth on the forward looking statements as a result of
the risks set forth in the Company' filings with the Securities and Exchange
Commission, general economic conditions, and changes in the assumptions used in
making such forward looking statements.
M&A West, Inc. (the "Company") is engaged in providing public relations
consulting services primarily to public companies and in the trading of equity
securities of Internet companies for its own account. In addition, the Company
invests in start up Internet companies and assists in their operations and
development.
THREE MONTHS ENDED AUGUST 31, 2000 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1999
Net revenues for the three months ended August 31, 2000 decreased by $3,027,166
or 88% to $ 431,445 from $3,458,611 for the corresponding period of the prior
year. The decrease was primarily due to the Company's suspension of its
consulting services business in favor of developing in-house projects such as
Ronlan Entertainment, Inc. and Venturelist.com, Inc.
Selling, general and administrative expenses for the three months ended August
31, 2000 increased by $467,075 or 90% to $985,255 from $518,180 for the
corresponding period of the prior year. The increase is attributable to an
increase of $341,934 in general and administrative expenses which represent an
increase in depreciation and amortization of $142,584 relating to assets
purchased and goodwill related to the purchase of SierraNet.com; costs
associated with new offices located in New Jersey, Georgia and Pennsylvania; and
an increase in professional fees. Also contributing to the increase in selling,
general and administrative expenses was an increase in employment and payroll
expenses of $225,161, principally due to the employment of approximately
thirteen additional employees in the Company's new offices. Selling, general and
administrative expenses will decrease as the Company has closed its New Jersey
and Georgia offices. Amortization of goodwill and assets other than goodwill
will reflect a full period.
Interest income for the three months ended August 31, 2000 increased by $968 or
179% to $1,510 from $542 for the corresponding period of the prior year. This
increase resulted from increased activity in the Company's brokerage account.
Equity losses of affiliates resulted from the Company's ownership in certain
investments that are accounted for under the equity method. Under the equity
method of accounting, the Company's proportionate share of each affiliate's
operating losses and amortization of the Company's net excess investment over
its equity in each affiliate's net assets is included in equity and losses of
affiliates. Equity in losses of affiliates for the three months ended August 31,
2000 totaled $ 110,689 from the Company's ownership in Shakai Racing, Inc. and
Ronlan Entertainment, Inc. which represents an increase of $73,319 or 196% to
$110,689 from $37,370 for the corresponding period of the prior year. The
Company expects its portfolio companies to invest in development of their
products and services, and to recognize operating losses, which will result in
future charges against the Company's earnings.
For the three months ended August 31, 2000 Trading gains (losses) decreased
$63,124 or 95% to $3,350 from $66,654 due to the decline in market conditions
associated with the Company's stock portfolio. Unrealized gains and losses of
$549,386 represent the write-up to market value of the Company's stock ownership
in Packeteer (formerly Workfire Technologies).
Net income for the three months ended August 31, 2000 decreased by $1,662,306 to
$119,951 from a profit of $1,782,257 for the corresponding period of the prior
year, principally due to the decrease in revenues and the increase in selling,
general and administrative expenses. For the three months ended August 31, 2000
the Company recorded a tax benefit of $230,024, arising from net operating loss
carryforwards. The provision for income taxes for the same period in the prior
year was $1,188,000.
Other comprehensive income reflects the unrealized gain or loss, net of tax, on
the Company's investment portfolio. For the three months ended August 31, 2000,
the Company reported losses net of taxes of $ 10,959,375 from unrealized loss on
available for sale securities held in the Company's investment portfolio. There
was no other comprehensive income for the corresponding period. Principally as a
result of this other comprehensive income, the Company had comprehensive income
of $ (11,385,251) for the three months ended August 31, 2000 compared with
$1,782,257 for the corresponding period of the prior year.
Liquidity and Capital Resources
At August 31, 2000 the Company had working capital of $ 8,311,908 including cash
of $ 488,475. This compares with working capital of $2,162,347 including cash of
$ 181,425 for the corresponding period of the prior year. The increase in
working capital is primarily due to marketable securities which were not owned
during the same period in the prior year.
10
<PAGE>
Cash flows from operating activities decreased to $ (557,151) from cash used in
operations of $ 377,063 for the corresponding period of the prior year. This
change resulted from the decrease in consulting revenues.
Cash used in investing activities totaled $ (105,920) for the three months ended
August 31, 2000. This resulted from proceeds from sales of investments and
capital infusion into unconsolidated subsidiaries . For the corresponding period
of the prior year the Company had $(1,337,451) of cash used by its investing
activities. This resulted from a net purchase of investments of $ 1,334,613 and
equipment of $ 2,838.
During the current fiscal year, the Company has generated sufficient funds from
its operations to finance its growth and that for the next twelve months.
However, because management believes that there are numerous investment
opportunities that would be available if the Company had additional resources,
it is contemplating a debt or equity offering.
Impact of Inflation
To date, the Company has not experienced any impact from inflation and does not
anticipate any such impact in the foreseeable future.
11
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
On August 2, 2000, the Company filed a Form 8-K relating to the
Board's approval and adoption of a charter for its audit committee.
On August 2, 2000, the Company filed a Form 8-K relating to a change
in the Company's auditors. Comiskey & Company, P.C. terminated its
client-accountant relationship with the Company and the Company
engaged Hood & Strong, LLP.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
M&A WEST, INC.
Date: October 20, 2000 By: /s/ Scott Kelly
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Scott Kelly
President and Chief Executive Officer
Date: October 20, 2000 By: /s/ Sal Censoprano
--------------------------------------
Sal Censoprano
Chief Financial Officer and Secretary
13
