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 February 29, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from__________to__________.
Commission File Number 0-21955
M&A WEST, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1356427
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
583 San Mateo Avenue, San Bruno, California 94066
-------------------------------------------------
(Address of principal executive offices)
650-588-2678
---------------------------
(Issuer's telephone number)
N/A
----------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
twelve (12) months (or such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past ninety (90) days. Yes X No
As of March 31, 2000, 11,000,000 shares of Common Stock of the issuer were
outstanding.
<PAGE>
M&A WEST, INC.
FORM 10-QSB
INDEX
Page
-------
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of February 29, 2000 and
May 31, 1999 3
Consolidated Statements of Operations for the three months and
nine months ended February 29, 2000 and 1999 4
Consolidated Statements of Cash Flows for the nine months ended
February 29, 2000 1999 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis or Plan of Operations 11
PART II - OTHER INFORMATION
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
M&A WEST, INC.
BALANCE SHEET
<TABLE>
February 29, 2000 February 28, 1999
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 79,220 $ 32,796
Accounts receivable-clients 1,000,000 40,000
Marketable securities held for trading 3,585,989 -
Investment-at equity 553,060
Investment-at cost 5,446,680 60,600
Employee advances 38,679
Prepaid taxes - -
Note receivable 1,200,000 -
Loans receivable 5,000 24,007
--------------- ----------------
Total current assets 11,908,628 157,403
Other Assets
Deferred income tax asset 12,110 16,341
Property and equipment, net of depreciation 77,160 -
Homesmart, restricted securities 87,825 173,744
--------------- ----------------
Total assets $ 12,085,723 $ 2,520,041
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 9,219 $ 16,318
Income taxes payable 2,726,868
Payroll taxes accrued and payable 20,691 8,879
Deferred revenue 979,167 -
--------------- ----------------
Total current liabilities 3,735,945 25,197
Stockholders' Equity
Common stock, no par value, 100,000,000 shares
authorized, 11,000,000 shares issued and outstanding 2,020,538 2,500
Treasury stock (338,510) -
Retained earnings 3,570,059 146,097
Accumulated other comprehensive income 3,097,691 -
--------------- ----------------
Total equity 8,349,778 148,597
--------------- ----------------
Total liabilities and equity $ 12,085,723 $ 173,794
=============== ================
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
M&A WEST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
<TABLE>
Three Months Ended Nine Months Ended
----------------------------------- -------------------------------------
2-29-00 2-28-99 2-29-00 2-28-99
--------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenue
Consulting Revenue $ 483,951 $ 211,493 $6,142,300 $ 482,284
Refunds - 2,621
Trading gains (losses) (48,352) 1,501 (188,956) 2,577
--------------- --------------- ----------------- ----------------
Total revenue 435,599 212,994 5,955,965 484,861
Expenses:
Selling, general and administrative expenses
653,907 349,300 1,549,784 668,723
--------------- --------------- ----------------- ----------------
Income from operations (218,308) (136,306) 4,406,181 (183,862)
Other income
Interest income 156 40 1,051 86
Gains, (losses) on sale of securities, net - - 173,292 (12,179)
Equity in loss of unconsolidated subsidiary
Gain on sale of subsidiary (7,581) - (147,429) -
Total other income (loss) 1,197,000 - 1,197,000 -
--------------- --------------- ----------------- ----------------
Net income before taxes 971,267 (136,266) 5,630,095 (195,955)
Income tax expense (388,500) - (2,251,500) -
--------------- --------------- ----------------- ----------------
Net income 582,767 (136,266) 3,378,595 (195,955)
Other comprehensive income
Unrealized gains on available-for-sale securities,
net of tax 1,978,149 0 3,097,691 0
--------------- --------------- ----------------- ----------------
Comprehensive income $2,560,916 $ (136,266) $ 6,476,286 $(195,955)
=============== =============== ================= ================
Net income per share $ 0.23 (54.51) $ 0.59 $(78.38)
--------------- --------------- ----------------- ----------------
Average weighted number of shares outstanding
11,000,000 2,500 11,000,000 2,500
=============== =============== ================= ================
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
M&A WEST, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
February 29, February 28,
2000 1999
------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES $ 166,852 $ (136,266)
------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (43,273) (16,391)
Purchase of investments (1,186,172) 186,319
------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES - -
------------ ---------------
Net increase in cash and cash equivalents (1,062,593) 33,662
Cash and cash equivalents, beginning of year 1,141,813 (866)
------------ ---------------
Cash and cash equivalents, end of year $ 79,220 $ 32,796
============ ===============
See Notes to Consolidated Financial Statements
5
<PAGE>
M&A WEST, INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2000
1. Summary of Significant Accounting Policies
------------------------------------------
Description of Business
M&A West, Inc. is engaged in providing management consulting services to
public companies. 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, in a transaction more fully described in Note 3,
whereby M&A West became a wholly owned subsidiary of 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 consolidated entity from May 12 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
The Company holds investments in marketable equity securities. Investments
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 which the Company has significant influence but
not voting control are accounted for at original cost, as adjusted for the
Company's share of the investee's gains and losses. Investments in non-trading
equity securities are considered available for sale, and are accounted for at
cost, which approximates market.
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. Depreciation is
provided using the straight line method over estimated useful lives of 5 to 7
years.
6
<PAGE>
Advertising
Advertising costs are expensed as incurred.
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.
Loss per share
Loss per share has been calculated using the average number of shares
outstanding.
2. Related Party Transactions
--------------------------
For the period ended February 29, 2000 the Company's offices were leased
from the Company's Chief Executive Officer on a month-to-month basis for monthly
payments of $ 1,811. The Company also leased space from its Chief Financial
Officer on a month-to-month basis for $712 per month.
3. Stockholders' Equity
--------------------
Authorized capital
The Company's capital consists of 100,000,000 authorized common shares, no
par value, of which 11,000,000 shares were issued and outstanding at February
29, 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 November 30,1999.
4. Income Taxes
------------
The Company has recorded a deferred tax asset for the effects of unrealized
losses 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
-----------
Investments at equity
The Company has a 100% investment in Shakai Racing, Inc. at February 29,
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 February 29, 2000:
7
<PAGE>
Current Assets $ 809
Property and equipment 58,130
Other assets 0
---------------
58,939
===============
Total liabilities 0
Total stockholders' equity $ 58,939
===============
Total revenue $ 190
Net loss $ 7,581
===============
The Company's investment in VLDC Technologies, Inc. was reduced to 16% at
October 25,1999 in a merger with University Mortgage. This transaction is
further explained in Note 7. The Company's investment in Digital Bridge, Inc.
was reduced to 17% at January 28, 2000 in a merger with Black Stallion
Management. This transaction is further explained in Note 8.
Investments in other equity securities
The Company has invested in equity securities of companies for which no
established trading market exists at February 29, 2000. These securities are
stated at cost that does not exceed the estimated net realizable value.
6. Fixed Assets
------------
The Company's property and equipment consists of the following at February
29,2000:
Computers $ 65,863
Office furniture 17,414
--------------
83,277
less accumulated depreciation 6,177
--------------
$ 77,160
==============
7. Other Comprehensive Income
--------------------------
On October 15,1999 a Special Meeting of Stockholders of VLDC Technologies,
Inc. 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 the
reduction in ownership percentage of M&A West, Inc. from 21% to 16%. Prior
financial reports reflected accounting for the Company's interest in VLDC using
the equity method, whereby the Company's investment is increased by gains and
additional investments, and decreased by losses and distributions. These
securities are treated as available for sale securities. As per Statement of
Financial Standards Board No. 130, reporting Comprehensive Income (FAS 130)
requires the reporting of comprehensive income when certain components exist.
The ownership reduction permits this asset to be reported at fair market value
which is higher than book value. These unrealized gains on available for sale
securities are reflected in the equity section of the balance sheet representing
the cumulative change from historical cost of the investment net of taxes.
8
<PAGE>
Changes in other comprehensive income are shown below:
Before-Tax Tax or Net of Tax
Amount Benefit Amount
----------- --------- ----------
Unrealized gains on available for sale
securities $ 2,769,409 $ 791,260 $1,978,149
=========== ========= ==========
There are no re-classification or adjustments.
8. Spin off of Subsidiary
----------------------
In January 2000, Digital Bridge, Inc. 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 at cost.
9. Sale of Subsidiary
------------------
On February 12, 2000, the Company sold its wholly owned subsidiary, Virtual
Wagering.com, to a European company. The sale price was $1,200,000. Payment
terms called for payment by February 29, 2000, however, the monies were not
received until March 6, 2000. The Company recorded a Note Receivable on the
Balance Sheet to record the monies due.
In addition to the sale of Virtual Wagering. Com, the Company entered into
a consulting agreement with the European concern to further develop the portal
site. The agreement is for $1,000,000 over a two year period. The Company has
pro rated the consulting income to record one half of one month's income with
corresponding entries to Accounts Receivable and Deferred Revenue.
10. Branches
--------
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.
11. Other Transactions
------------------
The Company entered into a stock purchase agreement with
InvestorPackages.com purchasing all the outstanding stock of this private
company. The purchase price of InvestorPackages.com was $500,000 payable in the
Company's stock.
9
<PAGE>
12. Subsequent Event
----------------
On March 3, 2000 the Company finalized an asset purchase agreement with
SierraNet.com (a Nevada corporation), an Internet Service Provider. The
agreement makes SierraNet a wholly owned subsidiary of the Company servicing
parts of California, Reno and Lake Tahoe.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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's actual results could
differ materially from those set forth on the forward looking statements as a
result of the risks set forth in a Company's 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 March 31, 1997 Compared to the Three Months Ended March 31,
1996.
Net revenues for the three months ended February 29, 2000 increased by
$222,605 or 204% to $435,599 from $212,994 for the corresponding period of the
prior year. The net increase reflects an increase of $272,458 in consulting
income which was partially offset by a decrease of $49,853 in trading gains.
Selling, general and administrative expenses for the three months ended
February 29, 2000 increased by $304,607 or 187% to $653, 907 from $349, 300 for
the corresponding period of the prior year. The increase is attributable to an
increase in advertising expenses of $129,531, employment and payroll expenses of
$146,110 and an increase of $144,694 in general and administrative expenses
which were partially offset by a decrease of $115,728 in outside consulting
expenses. Selling general and administrative expenses will continue to grow as
the company adds new personnel to assist with its growing portfolio of companies
and to reduce its dependency on outside consultants. In addition, as the
Company's incubator firms grow, the Company's advertising budget will increase
as these companies bring their products to market.
Interest income for the three months ended February 29, 2000 increased by
$116 or 298% to $156 from $40, 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 February 29, 2000 totaled $7,581 from the Company's ownership in Shakai
Racing, Inc. There was no equity in losses of affiliates 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.
The gain of $1,197,000 on the sale of the subsidiary resulted from the sale
of the Company's wholly owned subsidiary, Virtual Wagering.com to a European
company. There was no similar transaction during the corresponding period of the
prior year.
11
<PAGE>
Net income before taxes for the three months ended February 29, 2000
increased by $1,107,533 to $971,267 from a loss of $136,266 for the
corresponding period of the prior year. For the three months ended February 29,
2000, the Company recorded an income tax provision of $388,500 or 40% reducing
net income to $582,767. There was no income tax provision for the corresponding
period of the prior year as the Company incurred a net operating loss.
Other comprehensive income reflects the unrealized gain or loss, net of tax
on the Company's investment portfolio. For the three months ended February 29,
2000, the Company reported income net of taxes of $1,978,149 from unrealized
gains on available for sale securities held in the Company's investment
portfolio. There was no other comprehensive income for the corresponding period
of the prior year. Principally as a result of this other comprehensive income
and the gain on the sale of the subsidiary, the Company had comprehensive income
of $2,560,916 for the three months ended February 29, 2000 compared with a loss
of $136,266 for the corresponding period of the prior year.
Nine Months Ended February 29, 2000 Comparable to the Nine Months Ended February
28, 1999
Net revenues for the nine months ended February 29, 2000 increased by
$5,471,104 or 1128% to 5,955,965 from 484,861 for the corresponding period of
the prior year. This increase resulted from an increase in consulting income
$5,660,016 and refunds of $2,621 which were partially offset by a net change in
trading losses of $191,533.
Selling, general and administrative expenses for the nine months ended
February 29, 2000 increased by $881,061 or 32% to $1,549,784 from $668,723 for
the corresponding period of the prior year. This increase is attributable to
increases in advertising expense of $284,138, employment expenses of $426,235
and general and administrative expenses of $315,547 which were partially offset
by a decrease of $144,859 in outside consulting expenses.
Interest income for the nine months ended February 29, 2000 increased by
$965 or 1122% to $1,051 from $86 for the corresponding period of the prior year.
This increase resulted from an increase in activity in the Company's brokerage
account.
For the nine months ended February 29, 2000, the Company reported a
$173,292 net gain on the sale of securities. This compares with a net loss of
$12,179 for the corresponding period of the prior year. The net change in the
current period is principally the result of the sale of stock from its
portfolio.
Equity in 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
affiliates operating losses and amortization of the Company's net excess
investment over its equity in each affiliates net assets is included in equity
and loss of affiliates. Equity in losses of affiliates for the nine months ended
February 29, 2000 totaled $147,429 from the Company's ownership in Shakai
Racing, Inc. There was no equity in losses of unconsolidated subsidiaries for
the corresponding period of the prior year.
12
<PAGE>
The gain of $1,197,000 on the sale of a subsidiary resulted from the sale
of the Company's wholly-owned subsidiary, Virtual Waging.com to a European
company. There was no similar transaction during the corresponding period of the
prior year.
Net income before taxes for the nine months ended February 29, 2000
increased by $5,826,050 to $5,630,095 from a loss of $195,955 for the
corresponding period of the prior year. For the nine months ended February 29,
2000 the Company recorded a tax provision of $2,251,500 or approximately 40%
reducing net income to $3,378,595. There was no income tax provision for the
corresponding period of the prior year as the Company incurred a net operating
loss.
Other comprehensive income reflects the unrealized gain or loss, net of tax
on the Company's investment portfolio. For the nine months ended February 29,
2000, the Company reported income net of taxes of $3,097,691 from unrealized
gains on available for sale of securities held in the Company's investment
portfolio. There was no other comprehensive income for the corresponding period
of the prior year. Principally as a result of this other comprehensive income
the gain on the sale of the subsidiary, and the increase in consulting revenues,
the Company had comprehensive income of $6,476,286 for the nine months ended
February 29, 2000 compared with the loss of $195,955 for the corresponding
period of the prior year.
Liquidity and Capital Resources
At February 29, 2000, the Company had working capital of $8,172,683
including cash of $79,220. This compares with working capital of $2,179,308
including cash of $1,141,813 for the corresponding period of the prior year.
Cash flows from operating activities increased to $166,852 from cash used
in operations of $136,266 for the corresponding period of the prior year. This
change resulted from
Cash used in investing act ivies totaled $1,229,445 for the nine months
ended February 29, 2000. This resulted from a net purchase of investments of
$1,186,172 and equipment of $43,273. For the corresponding period of the prior
year the Company had $169,928 of cash produced by its investing activities. This
resulted from a net sale of investments of $186,319 which was partially offset
by the purchase of $16,391 of equipment.
There were no financing activities for either the nine months ended
February 29, 2000 or the corresponding period of the prior year.
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 which would be available if the Company had additional resources,
it is contemplating an equity offering to obtain additional equity.
13
<PAGE>
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.
PART II - OTHER INFORMATION
Item 5. Other Information
In January 2000, Digital Bridge, Inc. a wholly owned subsidiary of the
Company merged with Black Stallion Management, Inc. (a publicly traded company)
in a stock for stock transaction. Following the merger, the Company's interest
was reduced to 17% approximately 4,600,000 shares.
On February 12, 2000, the Company sold its wholly owned subsidiary, Virtual
Wagering.com, to a European company. The sale price was $1,200,000.
In addition to the sale of Virtual Wagering.com, the Company entered into a
consulting agreement with the European concern to further develop the portal
site. The agreement is for $1,000,000 payable over a two-year period.
On March 3, 2000, the Company finalized an asset purchase agreement with
SierraNet.com (a Nevada corporation), an Internet Service Provider. The
agreement makes SierraNet a wholly owned subsidiary of the Company servicing
parts of California, Reno and Lake Tahoe.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
14
<PAGE>
SIGNATURE
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: April 10, 2000 By:/s/ Scott Kelly
--------------------
Scott Kelly, President
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-1-1999
<PERIOD-END> FEB-29-2000
<CASH> 79,220
<SECURITIES> 4,139,049
<RECEIVABLES> 1,000,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,908,628
<PP&E> 77,160
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,085,723
<CURRENT-LIABILITIES> 3,735,945
<BONDS> 0
0
0
<COMMON> 2,020,538
<OTHER-SE> 6,329,240
<TOTAL-LIABILITY-AND-EQUITY> 12,085,723
<SALES> 435,599
<TOTAL-REVENUES> 435,599
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 653,907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,949,416
<INCOME-TAX> 388,500
<INCOME-CONTINUING> 2,560,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,560,916
<EPS-BASIC> .23
<EPS-DILUTED> .23
</TABLE>
