SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Fiscal Year Ended May 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From ___________ to_____________.
Commission File No.: 0-21955
M & A West, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 84-1356427
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
583 San Mateo Ave. San Bruno, CA 94066
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(Address of principal executive offices) (Zip Code)
(650) 588-2678
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Registrant's telephone number, including area code
None
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Securities to be registered under Section 12(b) of the Act
Securities to be registered under Section 12(g) of the Act:
Common Stock, no par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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
____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
The aggregate market value of voting Common Stock held by non-affiliates of the
Registrant was $19,007,724 as of August 15, 2000. The Registrant does not have
any outstanding non-voting equity.
On August 15, 2000, the Registrant had outstanding 11,171,258 shares of voting
Common Stock, $.001 par value.
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INDEX
FORM 10-KSB
YEAR-ENDED MAY 31, 2000
Item Description Page Number
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1 Description of Business...............................................3
2 Properties............................................................6
3 Legal Proceedings.....................................................6
4 Submission of Matters to Vote of Security Holders.....................6
5 Market for Registrants Common Equity and Related
Stockholder Matters...................................................6
6 Management's Discussion and Analysis or Plan of Operations............7
7 Financial Statements.................................................12
8 Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure.............................................12
9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(A) of the Exchange Act....................12
10 Executive Compensation...............................................14
11 Security Ownership of Certain Beneficial Owners and Management.......15
12 Certain Relationships and Related Transaction........................16
13 Exhibits and Reports on Form 8-K.....................................16
Signatures...........................................................17
Index to Financial Statements........................................18
Financial Statements................................................F-1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
M & A West, Inc. ("MAWI" or "the Company"), formerly Buffalo Capital IV,
Ltd., is a Colorado corporation engaged in providing public relations consulting
services primarily to public companies and in the trading of equity securities
for its own account primarily in Internet related companies. On May 12, 1999, M
& A West, a Nevada corporation, executed a stock transfer and exchange with
Buffalo Capital IV, Ltd., a publicly traded "shell" company in a transaction
more fully described below 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
this report refer to M & A West, Inc., the Nevada corporation, prior to May 12,
1999, and to the consolidated entity since May 12, 1999.
The Company develops, invests in, and operates Internet technology related
companies. The strategy of the Company includes the internal development and
operation of majority owned subsidiaries within the M & A West family, as well
as the investments in other Internet companies either directly by the Company,
or through other venture capital arrangements. The Company strategy also
promotes opportunities for synergistic business relationships among the Internet
companies within its portfolio.
The Company was incorporated as a Nevada corporation in 1996 to provide
guidance for small public companies and other companies wishing to enter the
public markets to raise capital, raise awareness of their businesses and effect
strategic mergers, acquisition and other business combinations. To provide
clients with a complete package of services, the Company formed its Corporations
Division in 1997 for effective public market strategies and followed with an
Internet Marketing Division and Internet Technology Development Division.
The Company actively seeks business situations that present opportunities
in the realm of the Internet and electronic business. The Company looks to
invest in companies that have a demonstrable potential for success as an
Internet business. The Company then brings talent in the areas of web commerce,
marketing, finance and business development in an effort to guide and develop
those companies. The Company seeks companies that compliment those in which it
already has an investment so that these companies can, together, form an
electronic commerce community.
Interactive Marketing Industry
Direct marketing is undergoing rapid, fundamental change, as customers'
needs evolve and technology advances. Marketing channels and media outlets are
expanding in both number and diversifying in scope, and powerful database
technologies are able to target both broad markets and individual customers with
ever-greater precision. The emergence of the Internet in homes and offices has
provided direct marketers with a powerful new distribution mechanism -
interactive media. Interactive marketing is a subset of direct marketing. It
differentiates itself from traditional direct marketing channels in that the
consumer has flexibility and control over what is being presented, when they
view the products or services and which types of products or services they are
viewing.
In contrast to conventional media, the Internet offers capabilities to
target advertising to specific audiences, to measure the popularity of content,
to reach worldwide audiences cost-effectively and to create innovative and
interactive advertisements. By collecting customer feedback and demographic
information, advertisers can direct highly customized marketing campaigns at
prospective customers much more rapidly than with conventional media. The
Company believes that advertisers will continue to seek to advertise on Web
sites that offer a high volume of traffic and feature flexible advertisement
programs capable of reaching targeted audiences. Likewise, the Company believes
that as advertisers increasingly embrace the Internet as an advertising vehicle,
their participation will subsidize in part the creation and expansion of the
information and resources available on the Web which in turn is expected to
stimulate further traffic flow.
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Interactive marketing provides direct marketers with the ability to create
electronic databases of customer information. Using this information will enable
direct marketers to develop more effective advertising, make better decisions
about distribution methods and media selection and target customers more
effectively. The dialogue created between the marketer and the consumer permits
marketers to track advertisement interaction, anticipate consumer needs and make
changes immediately. It is expected that across scores of industries, the
relationship between marketers and consumers will soon be direct, and
one-to-one. When that day arrives, marketers will benefit from this newfound
ability to establish relationships with their customers.
Business Strategy
The Company's strategy is to increase its market share within its
respective market niche. The success factors include understanding, developing
and applying information to the Internet, interactive media markets and data
access and software tools; narrowing market focus while establishing strategic
alliances to complement product and service offerings; and investing in
strategic Internet or interactive media investments or acquisitions.
With respect to the businesses of MAWI, the Company will seek to expand its
participation in the direct marketing of products and services, the Internet,
interactive media industries and increase market share. The key elements of the
strategy include the continued enhancement and expansion of the Company's
products and services. The Company has invested significant resources in new
subsidiaries or investments which seek to capitalize on opportunities
surrounding the growth of the Internet and the interactive marketing industry.
The Company intends to continue to pursue the growth in development of its
technologies and services, and continue to introduce its products commercially.
Additionally, the Company intends to continue to evaluate new opportunities to
further its investment in direct marketing strategies and to seek out
opportunities to realize significant shareholder value through the sale of
selected investments or technologies, or through separate subsidiaries selling a
minority interest to third parties.
Sales and Marketing
The Company markets its products and services through a marketing staff
using both telemarketing and direct sales. The Company maintains separate
marketing staffs for each product and service area, enabling the marketing
personnel to develop strong customer relationships and expertise in their
respective areas. The Company has established direct sales forces experienced in
the advertising business to address the new and evolving requirements of the
Internet advertising market. The Company believes that an experienced sales
staff is critical to initiating and maintaining relationships with advertisers
and advertising agencies and therefore has hired a significant portion of its
Internet advertising sales force from the advertising industry. The Company
advertises its products and services through direct mail, space advertising,
Internet banners, directory listings, trade shows and Company sponsored user
groups. In certain instances, the Company has complemented the activities of its
direct sales force by retaining advertising sales agencies to serve as sales
representatives on a commission basis.
The Company attends numerous trade shows in the Internet, high technology,
direct marketing, mutual fund, book, and library markets, while further
supplementing its sales efforts with space advertising and product and services
listings in appropriate directories. In addition, the Company sponsors user
group meetings for its mutual fund clients and major list participants in the
InfoBuyers List database, where products and services are highlighted.
The Company also conducts numerous mailings of list catalogs, flyers,
newsletters and other product information throughout the year to primarily book,
magazine, journal, newsletter and software publishers and resellers, seminar
companies, professional associations, business supply catalogers, consumer
electronic, high technology and financial service organizations.
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Competition
MAWI's Internet investments compete in the electronic technology and
Internet service arenas which are comprised of numerous companies providing
different and new technologies, all with varying applications. The market for
Internet products and services is highly competitive. In addition, the Company
expects the market for Internet advertising, to the extent it further develops,
to be intensely competitive. Although the Company believes that the diverse
segments of the Internet market will provide opportunities for more than one
supplier of products and services similar to those of the Company, it is
possible that a single supplier may dominate one or more market segments. The
Company believes the principal competitive factors in this market are name
recognition, performance, ease of use, variety of value-added services,
functionality and features and quality of support. MAWI's products and services
are being developed predominantly for direct marketing applications either on
the Internet or through interactive media. Competitors include a wide variety of
companies and organizations, including Internet software, content, service and
technology companies, telecommunication companies, cable companies and
equipment/technology suppliers. In the future, the Company may encounter
competition from providers of Web browser software and other Internet products
and services that incorporate competing features in to their offerings. Many of
the Company's existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical and marketing
resources than the Company.
The Company may also be affected by competition from licensees of its
products and technology. There can be no assurance that the Company's
competitors will not develop Internet products and services that are superior to
those of the Company or that achieve greater market acceptance than the
Company's offerings. Moreover, a number of the Company's current advertising
customers, licensees and partners have also established relationships with the
Company's competitors and future advertising customers, licensees and partners
may establish similar relationships. The Company may also compete with online
services and other Web site operators as well as traditional off-line media such
as print and television for a share of advertisers' total advertising budgets.
There can be no assurance that the Company will be able to compete successfully
against its current or future competitors or that competition will not have a
material adverse effect on the Company's business, results of operations or
financial condition.
Intellectual Property Rights
The Company regards its software technologies, databases and database
management software as proprietary. The Company depends on trade secrets for
protection of its software. It has entered into confidentiality agreements with
its management and key employees with respect to this software, and limits
access to, and distribution of this, and other proprietary information.
Employees
As of August 15, 2000 the Company employed a total of 25 persons on a
full-time basis. In addition, depending on client demand, the Company contracts
persons on a temporary, part-time basis. None of the Company's employees are
represented by a labor union. The Company believes that its relations with its
employees are good.
Significant Customers
The Company's significant customers include Auto Trade Center (AUTC) and
Starnet Communications (SNMM). The Company has provided investor relations for
said customers, but has been paid in full as of May 31, 1999. To this effect,
the Company does not rely on the future business of these companies.
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 from approximately to approximately 17%.
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In January, the Company also entered into asset purchase agreements with
InvestorPackages.com and Market Awareness Consultants. The purchase prices were
$500,000 and $171,600 respectively, paid for in stock of the Company.
On February 12, 2000, the Company sold its wholly owned subsidiary, Virtual
Wagering.com to a European company. The sales price was $1,200,000.
In addition to the sale of Virtual Wagering.com, the Company executed into
a consulting agreement with the European company 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 2. - PROPERTIES
The Company leases approximately 2,800 sq. ft. of its administrative, sales
and operations space in San Bruno, California, on a month to month basis from
Scott Kelly, President and CEO of M & A West. The Company had attempted to
determine the fair market rental rate for the lease of the property and has made
an independent determination that its lease payment is at or below prevailing
market conditions in San Bruno, California. The lease payment is $1,811 per
month. The Company leases space on a month-to-month basis from Sal Censoprano,
its Secretary and Chief Financial Officer. The lease payment for the premises
rented from Mr. Censoprano is $712 per month.
ITEM 3. - LEGAL PROCEEDINGS
There are no legal proceedings currently pending against the Company.
ITEM 4. - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the 4th
quarter of the fiscal year.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
The Company's common stock trades on the OTC Bulletin Board under the
symbol "MAWI". Prior to May 12, 1999, there was no trading activity in the
Company's common stock. The following chart represents the closing high and low
bid price for each fiscal quarter beginning with the fourth quarter of 1999.
High Low
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Quarter-ended May 31, 1999 (4th) 10% 9.125%
Quarter-ended August 31, 1999 (1st) 6.125% 5.75%
Quarter-ended November 30, 1999 (2nd) 5.875% 5.375%
Quarter-ended February 29, 2000 (3rd) 16% 15.313%
Quarter-ended May 31, 2000 (4th) 8.75% 7.125%
As of August 15, 2000, the Company's common stock was held of record by 38
persons.
The Company has never paid a cash dividend. Any dividends in the future
will be dependent on the Company's profitability, its need for working capital,
the Company's strategic objectives and other factors within the direction of the
Board of Directors.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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 the 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.
YEAR ENDED MAY 31, 2000 COMPARED TO THE YEAR ENDED MAY 31, 1999 AND MAY 31,1998
Net revenues for the year ended May 31, 2000 increased by $6,777,769 or 1,125%
to $ 7,379,856 from $602,087 for the corresponding period of the prior year.
Consulting revenues increased by $6,777,769 to $7,379,856 from $602,087 for the
corresponding period of the prior year. Internet service provider revenues of
$247,116 represent a new source of revenue for the Company. Revenues for the
period ended May 31, 1998 totaled $ 97,033.
Selling, general and administrative expenses for the year ended May 31, 2000
increased by $1,153,275 or 77% to $2,651,398 from $1,498,123 for the
corresponding period of the prior year. The increase is attributable to an
increase in advertising expense of $196,835, employment and payroll expenses of
$266,059 and an increase of $690,381 in general and administrative 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. Selling, general and administrative
expenses for the year ended May 31, 1998 totaled $ 50,431.
Interest income for the year ended May 31, 2000 increased by $937 or 257% to
$1,301 from $364 for the corresponding period of the prior year. This increase
resulted from increased activity in the Company's brokerage account. . There was
no interest income for the year ended May 31, 1998.
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 year ended May 31, 2000
totaled $ 150,574 from the Company's ownership in Shakai Racing, Inc. and Ronlan
Entertainment, Inc. an increase of $113,204 or 302% from $37,370 for the
corresponding period of the prior year. There was no activity for the year ended
May 31, 1998. The Company expects its portfolio companies to invest in
development of their products and services, often producing and to recognize
operating losses, which will result in future charges against the Company's
earnings.
Gains of $ 1,693,030 on the sale of the subsidiaries resulted from the sale of
the Company's wholly owned subsidiary. VirtualWagering.com to a European company
and three (3) Pokemon websites. There were no similar transactions during the
corresponding period of the two prior years.
Stock dividend income of $903,717 represents a dividend received from Workfire
Technologies, Inc. This company is a spin off of BCS Investments and is a
private company. There was no similar transaction during the corresponding
period of the two prior years.
For the year ended May 31, 2000 the Company had a trading loss of 1,182,984
compared to a trading gain of $1,224,932 for the corresponding period of the
prior year. This decrease is due to the decreasing sales prices of the Company's
stock portfolio. Unrealized gains and losses of ($2,894,811) represent the
write-down to market value of the Company's stock ownership in BCS Investments,
Inc. (formerly Workfire, Inc.).
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Net income before taxes for the year ended May 31, 2000 increased by $ 2,929,050
to $3,214,457 from $285,407 for the corresponding period of the prior year and
$61,947 for the year ended May 31, 1998. For the year ended May 31, 2000 the
Company recorded a tax provision of $ 1,278,000 or approximately 40% reducing
net income to $ 1,936,457. The provision for the prior year was $ 128,690 or
approximately 45% and $ 27,200 for the year ended May 31, 1998. The rate was
slightly lower for the year ended May 31, 2000 because a portion of the income
was eligible for capital gain rates.
Other comprehensive income reflects the unrealized gain or loss, net of tax, on
the Company's investment portfolio. For the year ended May 31, 2000, the Company
reported income net of taxes of $ 12,150,421 from unrealized gain on available
for sale securities held in the Company's investment portfolio. There was no
comprehensive income for the corresponding period of the two prior years. As a
result of this other comprehensive income, the gain on sale of subsidiaries, and
the increase in consulting revenues, the Company had comprehensive income of $
14,086,878 for the year ended May 31, 2000 compared with $156,717 for the
corresponding period of the prior year and $34,747 for the year ended May 31,
1998.
Liquidity and Capital Resources
At May 31, 2000 the Company had working capital of $ 15,536,210 including cash
of $ 1,151,546. This compares with working capital of $2,179,308 including cash
of $ 1,141,813 for the corresponding period of the prior year and working
capital of $46,493 including cash of $(866) for the year ended May 31, 1998.
Cash flows from operating activities increased to $ 1,339,568 from cash used in
operations of $ (63,142) for the corresponding period of the prior year. This
change resulted from the increase in consulting revenues and the gain on sale of
subsidiaries which was partially offset by operating assets and operating
liabilities. For the year ended May 31, 1998 cash flows from operations was
$(758).
Cash used in investing activities totaled $(957,995) for the year ended May 31,
2000. This resulted from a net purchase of investments of $ 3,259,664 and
equipment of $ 74,843 offset by proceeds from sales of investments of $
2,376,512. For the corresponding period of the prior year the Company had
$(795,045) of cash used by its investing activities. This resulted from a net
purchase of investments of $ 790,928 and equipment of $ 4,117.There was no cash
flow from investing activities for the year ended May 31, 1998.
Cash used for financing activities of $ 371,840 represents the purchase of the
Company's wholly owned subsidiary SierraNet.
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 either a debt or equity offering during the year ending
December 31, 2001.
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.
Factors That May Affect Future Results.
The Company operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control. Forward-looking
statements in this document and those made from time to time by the Company
through its senior management are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
concerning the expected future revenues or earnings or concerning projected
plans, performance, product development, product release or product shipment, as
well as other estimates related to future operations are necessarily only
estimates of future results and there can be no assurance that actual results
will not materially differ from expectations. The Company undertakes no
obligation to publicly release the results of any revisions to forward-looking
statements which may be made to reflect events or circumstances occurring after
the date such statements were made or to reflect the occurrence of unanticipated
events. Factors that could cause actual results to differ materially from
results anticipated in forward-looking statements include, but are not limited
to the following:
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Future Capital Needs - During its last fiscal year, the Company generated
operating profits which were partially funded by gains on sales of its interests
in other companies. To the extent the Company may become involved in future
investments, the Company may need to access outside sources of financing. There
can be no assurance that any such financing will be available or if such
financing is available, it may involve issuing securities senior to the Common
Stock or equity financings which are dilutive to holders of the Common Stock.
Dependence on a Single Customer - During fiscal year 2000 a significant portion
of the Company's revenues were derived from a limited number of customers,
including Starnet Communications International, Inc. ("Starnet"), which
accounted for 4,000,000 of the Company's total revenues. However, the Company is
actively shifting its focus from investor relations services to seed
investments, and, therefore, the Company believes that its dependence on Starnet
as a source of revenue will decline significantly.
Dependence on Continued Growth of the Internet and Internet Infrastructure - The
Company's future success is highly dependent upon continued growth in the use of
the Internet generally and, in particular, as a medium for advertising,
marketing, services and commerce. Commercial use of the Internet is at an early
stage of development, and market acceptance of the Internet as a medium for
advertising, information services and commerce is subject to a high level of
uncertainty. The relative effectiveness of the Internet as an advertising medium
as compared to traditional advertising media, for example, has not been
determined. Further, there can be no assurance that the required infrastructure
to support future Internet user and traffic growth or complementary products or
services necessary to make the Internet a viable commercial marketplace will be
developed, or, if they are developed, that the Internet will become a viable
commercial marketplace for products and services such as those offered by the
Company. If commercial use of the Internet fails to continue to expand, the
Company's business, results of operations and financial condition would be
adversely affected.
Dependence on Key Personnel - The Company's performance is substantially
dependent on the performance of its executive officers and other key employees
and its ability to attract, train, retain and motivate high quality personnel,
especially highly qualified technical and managerial personnel. The loss of the
services of any of its executive officers or key employees could have a material
adverse effect on its business, results of operations or financial condition.
Competition for talented personnel is intense, and there can be no assurance
that the Company will be able to continue to attract, train, retain or motivate
other highly qualified technical and managerial personnel in the future.
Government Regulation and Legal Uncertainties The Company is not currently
subject to direct regulation by any government agency, other than regulations
applicable to businesses generally. However, governmental regulators may, in the
future, seek to impose regulations on Internet activities. There are currently
few laws or regulations directly applicable to access to or commerce on the
Internet. Due to increasing popularity and use of the Internet, however, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet, covering issues such as user privacy, pricing, characteristics and
quality of products and services. The adoption of any additional laws or
regulations may also decrease the growth of the Internet, which could in turn
decrease the demand for the Company's products and services or could increase
the Company's cost of doing business. Moreover, the applicability to the
Internet of a range of existing laws in domestic and international jurisdictions
governing issues such as commerce, taxation, property ownership, defamation and
personal privacy is uncertain and will likely evolve over the course of many
years. Any such new legislation or regulation or application or interpretation
of existing laws, including tax laws, could have an adverse effect on the
Company's business, results of operations and financial condition.
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Rapid Change in Technology and Distribution Channels - Because the use of the
Internet as a commercial medium is relatively new and continues to evolve, the
market for the Company's products and services is characterized by rapidly
changing technology, evolving industry standards, frequent new product and
service introductions, shifting distribution channels, and changing customer
demands. Accordingly, the Company's future success will depend on its ability to
adapt to this rapidly evolving marketplace. There can be no assurance that the
Company will be able to adequately adapt its products and services or to acquire
new products and services that can compete successfully or that the Company will
be able to establish and maintain effective distribution channels. Failure to
maintain competitive product and service offerings and distribution channels
would have an adverse affect on the Company's business, results of operations
and financial condition. In addition, responding to these rapid technological
changes could require substantial expenditures by the Company, and there can be
no assurance that such expenditures will yield a positive investment return.
Intense Competition - The market for Internet products and services is highly
competitive and lacks significant barriers to entry. The Company expects
competition to intensify in the future. Numerous well-established companies and
smaller entrepreneurial companies are focusing significant resources on
developing and marketing products and services that will compete with the
Company's products and services. There can be no assurance that the Company will
be able to compete successfully or that competitive pressures, including
possible downward pressure on the prices it charges for its products and
services, will not adversely affect its business, results of operations and
financial condition.
Risks Inherent to the Company's Acquisition Strategy - The Company has in the
past, and intends in the future, to expand through the acquisition of
businesses, technologies, products and services. Acquisitions may result in the
potentially dilutive issuance of equity securities, the incurrence of additional
debt, the write-off of in- process research and development or software
acquisition and development costs, and the amortization of goodwill and other
intangible assets. Any such adjustment could result in an increase in the amount
of goodwill recorded, which would result in higher amortization expenses and,
therefore, adversely affect the Company's operating results. Further,
acquisitions involve a number of special problems, including difficulty
integrating technologies, operations and personnel and diversion of management
attention in connection with both negotiating the acquisitions and integrating
the assets. There can be no assurance that the Company will be successful in
addressing such problems. In addition, growth associated with numerous
acquisitions places significant strain on the Company's managerial and
operational resources. The Company's future operating results will depend to a
significant degree on its ability to successfully manage growth and integrate
acquisitions. Furthermore, many of the Company's investments are in early-stage
companies, with limited operating histories and limited or no revenues, there
can be no assurance that the Company will be successful in developing such
companies.
Uncertainties Associated with Selling Assets - A significant element of the
Company's business plan involves selling, in public or private offerings,
portions of the companies it has acquired and developed. The Company's ability
to engage in any such transactions, the timing of such transactions and the
amount of proceeds from such transactions are dependent on market and other
conditions largely beyond the Company's control. Accordingly, there can be no
assurance that the Company will be able to engage in such transactions in the
future or that when the Company is able to engage in such transactions they will
be at favorable prices. If the Company were unable to liquidate portions of its
portfolio companies at favorable prices, the Company's business, financial
condition and results of operations would be adversely affected.
Fluctuating Value of Certain Stock Assets - A portion of the Company's assets
includes the equity securities of both publicly traded and non-publicly traded
companies. Such assets include a large number of shares of common stock of
VirtualLender.com, Inc. and Digital Bridge, Inc., both publicly traded
companies. Fluctuations in the market price and valuations of the Company's
holdings in such other companies, which are partially dependent on market and
other conditions that are beyond the Company's control, may result in
fluctuations of the market price of the Company's Common Stock.
Management of Growth - The Company's growth has placed, and is expected to
continue to place, a significant strain on the Company's managerial, operational
and financial resources. Further, as the number of the Company's users,
advertisers and other business partners grows, the Company is required to manage
multiple relationships with various customers, strategic partners and other
third parties. These requirements will be exacerbated in the event of further
growth of the Company or in the number of its strategic relationships or
sponsorship arrangements. There can be no assurance that the Company's systems,
procedures or controls will be adequate to support the Company's operations or
that the Company's management will be able to achieve the rapid execution
necessary to successfully offer its services and implement its business plan.
The Company's future operating results will also depend on its ability to expand
its sales and marketing organization and expand its support organization
commensurate with the growth of its business and the Internet. If the Company is
unable to manage growth effectively, the Company's business, results of
operations and financial condition will be adversely affected.
10
<PAGE>
Risks Associated with Brand Development - The Company believes that establishing
and maintaining its brand names is a crucial aspect of its effort to continue to
expand and attract Internet business and that the importance of brand
recognition will increase in the future due to the growing number of Internet
companies. Promotion and enhancement of the Company's brand names will depend
largely on the Company's ability to provide consistently high-quality products
and services, which cannot be assured. If consumers do not perceive the
Company's existing products and services to be of high quality, or if the
Company introduces new products and services or enters into new business
ventures that are not favorably received by consumers, the value of the
Company's brand names could be diminished.
Dependence on Third-Party Relationships - The Company is currently, and expects
to be in the future, dependent on a number of third-party relationships. These
relationships include arrangements relating to the creation of traffic on the
Company-affiliated Web sites and resulting generation of advertising and
commerce-related revenue. The termination of, or the failure of such
Company-affiliated Web sites to renew such relationships on reasonable terms,
could have an adverse effect on the Company's business, results of operations
and financial condition. The Company also is generally dependent on other
third-party relationships with advertisers, sponsors and partners. Most of these
arrangements do not require future minimum commitments to use the Company's
services, are often not exclusive and are often short-term or may be terminated
at the convenience of the other party. There can be no assurance that these
third parties will not reassess their commitment to the Company at any time in
the future, or that they will not develop their own competitive services or
products. Further, there can be no assurance that the services of these
companies will achieve market acceptance or commercial success and therefore
there can be no assurance that the Company's existing relationships will result
in sustained or successful business partnerships or significant revenues for the
Company.
Fluctuations in Quarterly Results - In the past, the Company's operating results
have fluctuated on a quarterly basis, and the Company expects to continue to
experience significant fluctuations in future quarterly operating results. Such
fluctuations have been, and may in the future be, caused by numerous factors,
many of which are outside the Company's control, including demand for the
Company's products and services, incurrence of costs associated with
acquisitions, divestitures and investments, the timing of divestitures, market
acceptance of new products and services, specific economic conditions in the
Internet and direct marketing industries, and general economic conditions. The
emerging nature of commercial use of the Internet makes predictions concerning
future revenues difficult. The Company believes that period-to-period
comparisons of its results of operations will not necessarily be meaningful and
should not be relied upon as indicative of future performance.
Computer Operations - The Company's operations are dependent in part upon its
ability to protect its computer operating systems against physical damage from
fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events. The Company's data centers are equipped with generator back
up equipment, multiple fiber lines and other liquid and fire protection systems
for protection in case of disaster. Despite the implementation of physical and
network security measures by the Company, its servers are also vulnerable to
computer viruses, break-ins and similar disruptive problems. The occurrence of
any of these events could result in interruptions, delays or cessations in
service to users of the Company's products and services which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Dependence on Proprietary Rights; Risk of Infringement - The Company's success
depends in part on its proprietary technology and its ability to protect such
technology under applicable patent, trademark, copyright and trade secret laws.
Accordingly, the Company seeks to protect the intellectual property rights
underlying its products and services by filing applications and registrations,
as appropriate, and through its agreements with employees, suppliers, customers
and partners. However, there can be no assurance that measures adopted by the
Company to protect its proprietary technology will prevent infringement or
misappropriation of such technology. Further, legal standards relating to the
validity, enforceability and scope of protection of certain proprietary rights
in the context of the Internet industry currently are not resolved. The Company
licenses certain components of its products and services from third parties. The
failure by the Company to maintain such licenses, or to find replacement
components in a timely and cost effective manner, could have a material adverse
effect on the Company's business, results of operation and financial condition.
From time to time the Company has been, and expects to continue to be, subject
to claims in the ordinary course of its business, including claims of alleged
infringement of intellectual property rights of third parties by the Company.
Any such claim could subject the Company to significant liability for damages
and could result in invalidation of the Company's proprietary rights and, even
if not meritorious, could be time-consuming and expensive to defend, and could
result in the diversion of management time and attention, any of which could
have an adverse effect on the Company's business, results of operations or
financial condition.
11
<PAGE>
As of May 31, 1999, the Company has not been named in any lawsuit that may
materially affect its financial condition.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements of the Company, together with the independent
auditors' report thereon of Hood & Strong LLC appear on pages F-1 through F-14
of this report. See Index to Financial Statements on page 18 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In July, 2000, the Company changed its principal independent accountants
from Comisky & Company to Hood and Strong. The Company had no disagreements on
any material matters with its former accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors and executive officers currently serving the Company are as
follows:
Name Age Positions Held and Tenure
------ ----- ----------------------------
Scott L. Kelly 36 President, CEO & Chairman of the Board of
Directors since 1996
Sal Censoprano 45 Chief Financial Officer, Secretary & Director
since May, 1999
Scott Chase 35 Director
Scott Cacchionne 35 Director
John Flanders 31 Director
Milledge Hart 35 Director
The directors named above will serve until the next annual meeting of the
Company's stockholders. Thereafter, directors will be elected for one-year terms
at the annual stockholders' meeting. Officers will hold their positions at the
pleasure of the board of directors, absent any employment agreement, of which
none currently exists or is contemplated. There is no arrangement or
understanding between any of the directors or officers of the Company and any
other person pursuant to which any director or officer was or is to be selected
as a director or officer.
The directors and officers will devote full time to the Company's affairs
on an "as needed" basis, which, depending on the circumstances, could amount to
as little as two hours per month, or more than forty hours per month, but more
than likely will fall within the range of five to ten hours per month.
12
<PAGE>
Biographical Information
Scott L. Kelly
Scott L. Kelly has served as CEO, President and a Director of M & A West,
Incorporated from 1996 to the present. He received a Bachelor's Degree in
Business Administration from Adelphi University, Garden City, New York, in 1986,
a Master's Degree in Business Administration from San Francisco State
University, in 1992, and a Certified Financial Planner Degree from the College
of Financial Planning, Denver, Colorado, in 1990. He is the Director of the Boys
and Girls Club Foundation and appears in "Who's Who" in the California
Directory. Mr. Kelly has served as a manager of several brokerage firms and has
trained over 50 stock brokers and conducted more than 300 seminars on various
financial subjects in the United States, Russia, India, South America and
Europe. From 1988 to 1989, he was a financial planner with American Express
Financial Services, from 1989 to 1996 he was Senior Vice President of Interfirst
Capital, and in 1996 he was Senior Vice President of Waldron & Company.
Sal Censoprano
Mr. Censoprano has served as Secretary, Chief Financial Officer and as a
director of the Company since May, 1999. prior to that time he was self-employed
for approximately 15 years as a certified public accountant, providing tax and
accounting services to the public. Mr. Censoprano received a bachelor's degree
in accounting from Queens College, New York, in 1977, and a masters degree in
accounting and taxation from Adelphi University, Garden City, New York, in 1981.
Scott L. Chase
Scott Chase was elected to the Board of Directors in December, 1999. Mr.
Chase is the Director of OEM Sales for Identix, Inc., a position he has held
since April, 1999. From November, 1996 through April, 1999 he was the Sales
Director for Identicator Technology, Inc. and for March 1994 to November 1996 he
was the Sales Director for Logistics, Inc. Mr. Chase held a B.A. degree from San
Jose State in advertising.
Scott Cacchionne
Scott Cacchionne was elected to the Board of Directors in July, 1999. Mr.
Cacchionne is the Senior Vice President of Van Kasper and has held that position
since October, 1997. From January, 1993 to October, 1997 he was a Vice President
of Kidden Peabody. Mr. Cacchionne holds a B.A. degree from Arizona State
University in economics.
John C. Flanders, Jr.
John Flanders was elected to the Board of Directors in December, 1999. Mr.
Flanders is the President of CyberJunction.com, Inc. a position he has held
since July, 1997. Prior to joining CyberJunction.com, Inc., Mr. Flanders has
served as Vice President Sales and Marketing for eMerging Media, Inc. and Senior
Manager, Strategic Market Development for Orbit Network, Inc. Mr. Flanders holds
a BS Degree from Northeastern University in Business Administration.
Milledge Hart
Milledge Hart was elected to the Board of Directors in March, 2000. Mr.
Hart is the Chairman and Chief Executive Officer of Granada Entertainment
Enterprise, Inc., a position he has held since March, 1996. From June, 1991
through February, 1996 he was the President of Axon, Inc. Mr. Hart holds a B.A.
degree from Duke University in economics and public policy.
13
<PAGE>
Committees and Attendance of the Board of Directors
In order to facilitate the various functions of the Board of Directors, the
Board has created a standing Audit Committee and a standing Compensation
Committee.
The functions of the Company's Audit Committee are to review the Company's
financial statements with the Company's independence auditors; to determine the
effectiveness of the audit effort through regular periodic meetings with the
Company's independent auditors; to determine through discussion with the
Company's independent auditors that no unreasonable restrictions were placed on
the scope or implementation of their examinations; to inquire into the
effectiveness of the Company's financial and accounting functions and internal
controls through discussions with the Company's independent auditors and
officers of the Company; to recommend to the full Board of Directors the
engagement or discharge of the Company's independent auditors; and to review
with independent auditors the plans and results of the auditing engagement. The
members of the Audit Committee are Messrs. Cacchionne, Flanders and Hart.
The functions of the Company's Compensation Committee including reviewing
the existing compensation arrangements with officers and employees, periodically
reviewing the overall compensation program of the Company and recommending to
the Board modifications of such program which, in the view of development of the
Company and its business, the Committee believes are appropriate, recommending
to the full Board of Directors the compensation arrangements for senior
management and directors, and recommending to the full Board of Directors the
adoption of compensation plans in which officers and directors are eligible to
participate and granting options or other benefits under such plans. The members
of the Compensation Committee are Mr. Cacchionne, Chase and Hart.
The Board of Directors does not have a standing nominating committee or a
committee performing similar functions.
During the year ended May 31, 2000, the Board of Directors held one formal
meetings, including telephonic meetings, and acted through unanimous written
consent on other occasions. Because the Audit Committee and the Compensation
Committee were formed near the end of the fiscal year, neither Committee met
during the year ended May 31, 2000. Each director (during the period in which
each such director served) attended at least 75% of the aggregate of (i) the
total number of meetings of the Board of Directors.
Compensation of Directors
Each non-employee director of the Company is paid an initial fee of 10,000
shares of the Company's common stock, and thereafter options for the purchase of
10,000 shares of the Company's common stock per year. The option price is the
fair market value of the stock on the date of grant. The Company also reimburses
each director for all expenses of attending such meetings.
No additional compensation of any nature is paid to employee directors.
ITEM 10. EXECUTIVE COMPENSATION
The Compensation payable to the Company's officers and directors for the
current fiscal year is as follows:
Annual Salary Payable
--------------- ----------
Scott L. Kelly, President $120,000 $10,000 per month
Sal Censoprano,
CFO & Secretary $100,000 $8,333 per month
Both contracts are for a period of three years, expiring in the year 2002.
Both include bonuses that may be provided to the employee/officers to be issued
solely at the discretion of the Board based upon the performance of the
respective officers and the performance of the Company. Neither of the Company's
officers received compensation from the Company during the previous fiscal year.
14
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of August 15, 2000 the number of shares
of common stock owned of record and beneficially by executive officers,
directors, persons who hold 5% or more of the outstanding common stock of the
Company, and by all officers and directors as a group:
Name Number of shares Percent of
and Address Owned Beneficially Class Owned
------------ ------------------- -----------
Scott Kelly
(as Trustee of the
Kelly Family Trust)
583 San Mateo Avenue
San Bruno, CA 94066 4,984,600 44.31%
Sal Censoprano
1191 Chess Drive, #200
Foster City, CA 94404 0 0
Administrative Systems
Corporation, a
Nevada
corporation 1,647,500 14.64%
The Newman Company
1325 Airmobile Way
Suite 175
Reno, NV 89502 986,220 8.76%
Global Capital Concepts, Inc.
1325 Airmobile Way
Suite 175
Reno, NV
89502 523,022 4.65%
Realtec, Ltd.
c/o AMS Financial
Sea Meadow House
Blackburn Highway
Road Town Tortola
British Virgin Islands 208,385 1.85%
Zacco Equities, Ltd.
P. O. Box 116
Road Town Tortola
British Virgin Islands 908,015 8.07%
All Officers and directors
as a group (2 in number) 4,984,600 44.31%
15
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Scott L. Kelly, as Trustee of the Kelly Family Trust, controls 4,942,500
shares of common stock of the Company. Mr. Kelly is Chief Executive Officer and
Chairman of the Board of the Corporation. Mr. Kelly is also owner of the
building which houses the Company's principal headquarters and leases the
building to the Corporation. The Company believes that the lease of 2,800 sq.
ft. of office space for $1,811.00 per month is below market. Nevertheless, the
Corporation reviews leases on an annual basis to determine fairness of any such
leases. Sal Censoprano as Chief Financial Officer is paid $712.00 for
approximately 1,000 ft. of space which houses the Company's financial and audit
division. The Company believes that such rental amount is below market and
reviews the propriety and fairness of such rental annually.
Indemnification of Officers and Directors
As permitted by Colorado law, the Company's Articles of Incorporation
provide that the Company will indemnify its directors and officers against
expenses and liabilities they incur to defend, settle, or satisfy any civil or
criminal action brought against them on account of their being or having been
Company directors or officers unless, in any such action, they are adjudged to
have acted with gross negligence or willful misconduct. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in that Act and is, therefore, unenforceable.
Exclusion of Liability
Pursuant to the Colorado Corporation Code, the Company's Articles of
Incorporation exclude personal liability for its directors for monetary damages
based upon any violation of their fiduciary duties as directors, except as to
liability for any breach of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
acts in violation of Section 7-5-114 of the Colorado Corporation Code, or any
transaction from which a director receives an improper personal benefit. This
exclusion of liability does not limit any right which a director may have to be
indemnified and does not affect any director's liability under federal or
applicable state securities laws.
The Company has secured director and officer liability insurance with
National Union Insurance. Coverage for each director and officer is $5,000,000.
The annual premium for such insurance is $50,000.
Conflicts of Interest
Other than as disclosed in the above, the Company does not believe that any
other conflicts of interest exist among the officers, directors or shareholders
in any material respect. The Company reviews all potential conflicts of interest
that comes to its attention and has directed all officers and directors and key
personnel to disclose any anticipated conflicts of interest before they arise.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The Exhibits listed below are filed as part of this Annual Report.
Exhibit No. Document
----------- ----------
3.1 Articles of Incorporation (incorporated by reference to
Form 10-KSB/A filed with the Securities and Exchange
Commission on behalf of the Company on January 10, 1997)
3.2 Bylaws (incorporated by reference to Form 10- KSB/A filed
with the Securities and Exchange Commission on behalf of the
Company on January 10, 1997).
27.1 Financial Data Schedule
(b) Reports on Form 8-K
16
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
M & A West, Inc.
By: /s/ Scott Kelly
--------------------------------------
(Principal Executive Officer and Director)
Date: September 5, 2000
By: /s/ Sal Censoprano
--------------------------------------
(Principal Financial Officer and Director)
Date: September 5, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
------ ------- ------
/s/ Scott Kelly
______________________ Chairman of the Board, President September 5, 2000
Scott Kelly and Chief Executive Officer
/s/ Sal Censoprano
______________________ Chief Financial Officer, Secretary September 5, 2000
Sal Censoprano and Director
/s/ Scott Chase
______________________ Director September 5, 2000
Scott Chase
/s/ Scott Cacchionne
______________________ Director September 5, 2000
Scott Cacchionne
/s/ John Flanders
______________________ Director September 5, 2000
John Flanders
/s/ Milledge Hart
______________________ Director September 5, 2000
Milledge Hart
17
<PAGE>
Independent Auditors' Report 1
Financial Statements
Balance Sheet 2
Statement of Income and Comprehensive Income 3
Statement of Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6 - 14
18
<PAGE>
Independent Auditors' Report
BOARD OF DIRECTORS
M & A WEST, INC.
San Bruno, California
We have audited the accompanying balance sheet of M & A WEST, INC. (the Company)
as of May 31, 2000, and the related statements of income and comprehensive
income, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of M & A West, Inc. as of May 31, 1999 and
1998 were audited by other auditors whose report dated August 10, 1999,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of May 31, 2000,
and the results of its operations, and cash flows for the year then ended in
conformity with generally accepted accounting principles.
August 3, 2000
F-1
<PAGE>
M & A West, Inc.
Balance Sheet
<TABLE>
May 31, 2000 1999
------- ------- -------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,151,546 $ 1,141,813
Marketable securities held for trading 810,247 573,976
Marketable securities available for sale 22,981,842 327,000
Other current assets 193,222 18,000
------------- ------------
Total current assets 25,136,857 2,060,789
------------- ------------
Property and equipment, net 79,410 20,584
Equity Investments 903,051 426,558
Goodwill, net 1,185,000
Intangible assets other than goodwill, net 2,348,020
Deferred income taxes 0 12,110
------------- ------------
Total assets $ 29,652,338 $ 2,520,041
------------- ------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 27,044 $ 140,039
Income taxes payable 3,145,000 168,000
Deferred income taxes 6,477,487
Deferred revenue 854,167
------------- ------------
Total current liabilities 10,503,698 308,039
------------- ------------
Stockholders' Equity:
Common stock, no par value, 100,000,000 shares
authorized; shares issued and outstanding:
11,122,758 at May 31, 2000 and 11,000,000
at May 31, 1999 4,870,298 2,020,538
Preferred stock, no par value, 10,000,000 shares
authorized; no shares issued and outstanding - -
Retained earnings 2,127,921 191,464
Accumulated other comprehensive income 12,150,421
------------- ------------
Total equity 19,148,640 2,212,002
------------- ------------
Total liabilities and equity $ 29,652,338 $ 2,520,041
============= ============
</TABLE>
F-2
<PAGE>
M & A West, Inc.
Statement of Income and Comprehensive Income
<TABLE>
Years Ended May 31, 2000 1999 1998
------------------- ------ ------ ------
<S> <C> <C> <C>
Revenue
Consulting revenue $ 7,379,856 $ 602,087 97,033
Internet service provider income, net 116,320
------------- ------------ ---------
Total revenue 7,496,176 602,087 97,033
------------- ------------ ---------
Selling, General and Administrative Expenses
Advertising 455,414 258,579 3,859
Employee business expenses 162,040 119,003 10,286
Consultants 116,953 422,298 5,625
Payroll 682,252 153,885 3,261
Other selling, general and administrative expenses 1,234,739 544,358 27,400
------------- ------------ ---------
Total selling, general and administrative expenses 2,651,398 1,498,123 50,431
------------- ------------ ---------
Income (loss) from operations 4,844,778 (896,036) 46,602
------------- ------------ ---------
Other income (expense)
Interest income 1,301 364
Stock dividend income 903,717
Trading gains (losses) (1,182,984) 1,224,932
Unrealized gains and losses (2,894,811) (6,483) 15,345
Equity in loss of unconsolidated subsidiary (150,574) (37,370)
Gain on sale of subsidiary 1,693,030
------------- ------------ ---------
Total other income (expense) (1,630,321) 1,181,443 15,345
------------- ------------ ---------
Income before provision for income taxes 3,214,457 285,407 61,947
Provision for income taxes 1,278,000 128,690 27,200
------------- ------------ ---------
Net income 1,936,457 156,717 34,747
Other comprehensive income:
Unrealized gain on marketable securities
available for sale, net of tax 12,150,421
-------------
Comprehensive income $ 14,086,878 $ 156,717 34,747
============= ============ ==========
Net income per share $ 0.17 $ 0.01
------------- ------------
Comprehensive income per share $ 1.27 $ 0.01
------------- ------------
Weighted average shares outstanding 11,096,764 10,582,904 10,582,904
------------- ------------ -----------
</TABLE>
F-3
<PAGE>
M&A West, Inc
<TABLE>
Statement of Stockholders' Equity
Accumulated Other
Comprehensive Income
Net Unrealized
Gain on Total
Common Stock Preferred Retained Marketable Stockholders'
Shares Amount Stock Earnings Securities Equity
-------- -------- ---------- ---------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances - May 31, 1997 $ - $ - $ - $ - $ -
Issuance of stock 2,500 2,500
Comprehensive Income:
Net income 34,747 34,747
Balances - May 31, 1998 2,500 - 34,747 - 37,247
------------ ----------- --------- ----------- -------------- ------------
Issuance of stock 11,000,000 2,018,038 2,018,038
Comprehensive income:
Net income 156,717 156,717
------------ ----------- --------- ----------- -------------- ------------
Balances - May 31, 1999 11,000,000 2,020,538 - 191,464 - 2,212,002
Issuance of stock 198,258 3,221,600 3,221,600
Repurchase of stock (75,500) (371,840) (371,840)
Comprehensive income:
Net income 1,936,457 1,936,457
Other comprehensive income 12,150,421 12,150,421
------------ ----------- --------- ----------- -------------- ------------
Balances - May 31, 2000 11,122,758 $ 4,870,298 $ - $2,127,921 $ 12,150,421 $19,148,640
============ =========== ========= =========== ============== ============
</TABLE>
F-4
<PAGE>
M & A West, Inc.
Statement of Cash Flows
<TABLE>
Years Ended May 31, 2000 1999 1998
------------------- ------ ------ ------
<S> <C> <C> <C>
Operating Activities:
Net income $ 1,936,457 $ 156,717 $ 34,747
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Unrealized (gain) loss on investments 2,894,811 6,483 (15,345)
Trading losses 1,182,984
Consulting revenue received in stock (4,315,375)
Stock dividend income (903,717)
Equity in loss of unconsolidated subsidiaries 150,574 37,370
Depreciation and amortization 154,597 4,071
Deferred income taxes (1,610,683) (12,110) 6,750
Gain on sale of subsidiary (1,693,030)
Equity securities trading (538,548) (26,566)
(Increase) decrease in operating assets:
Other current assets (175,222) 3,000 (21,000)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (112,995) 111,875 20,548
Income taxes payable 2,977,000 168,000
Deferred revenue 854,167
-----------
Net cash provided by (used in) operating activities 1,339,568 (63,142) (866)
----------- ----------- ---------
Investing Activities:
Purchases of equipment (74,843) (4,117)
Proceeds from investment sales 2,376,512
Purchases of investments (3,259,664) (790,928)
----------- -----------
Net cash used in investing activities (957,995) (795,045)
----------- -----------
Financing Activities:
Common stock purchases (371,840)
Issuance of stock for cash 2,000,000
Bank overdraft 866
---------
Net cash provided by (used in) financing activities (371,840) 2,000,000 866
----------- ----------- ---------
Net Increase in Cash and Cash Equivalents 9,733 1,141,813
Cash and Cash Equivalents, Beginning of year 1,141,813
-----------
Cash and Cash Equivalents, End of year $ 1,151,546 $ 1,141,813 $ -
=========== =========== =========
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 158,000
Supplemental Disclosure of Non-Cash
Investing and Financing Activities:
Stock issued for acquisitions $ 3,221,600
Unrealized gain of available for sale securities, net of
deferred taxes of $8,100,280 $ 12,150,421
</TABLE>
F-6
<PAGE>
M&A WEST, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of Business:
M & A West, Inc. is engaged in providing management consulting services
primarily to public companies and investing in equity securities for its own
accounts. 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. The Company operates offices in San Bruno,
California; Atlanta, Georgia; Tinton Falls, New Jersey; and Williamsport,
Pennsylvania.
Note 2 - Summary of Significant Accounting Policies::
a. Basis of Accounting: The accompanying financial statements of the Company
are prepared using the accrual basis of accounting in which revenues are
recognized when earned, and expenses are recognized when incurred.
b. 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 revenues and expenses, as well as, contingent assets and
liabilities during the reporting period. Actual results could differ from
those estimates.
c. 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.
F-7
<PAGE>
Note 2 - Summary of Significant Accounting Policies (Continued):
d. 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.
e. Property and Equipment: 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.
f. Goodwill: Goodwill represents the excess of the cost of the assets acquired
from Sierra Net, Inc. over the fair value of the assets acquired and is
being amortized on the straight-line method over fifteen years (see Note
6).
g. Intangible Assets Other Than Goodwill: Web sites acquired in the purchases
of Investor Packages and Market Awareness Consultants and a customer list
acquired from Sierra Net, Inc. are being amortized on the straight-line
method over five years (see Note 6).
h. 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 and amortization of intangible
assets.
F-8
<PAGE>
Note 2 - Summary of Significant Accounting Policies (Continued):
i. Other Comprehensive Income: The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income"
(Statement 130) in fiscal year 2000 which established standards for the
reporting and display of comprehensive income and its components in a full
set of comparative general-purpose financial statements. Statement 130
requires net unrealized holding gains to be included in other comprehensive
income. Comprehensive income is reported by the Company in the statements
of income and comprehensive income and stockholders' equity for 2000. The
adoption of Statement 130 had no significant effect on the financial
position or results of operations of the Company for 1999 and 1998.
j. Advertising: Advertising costs are expensed as incurred.
k. Net Income per Share: Basic net income per share is based on the weighted
average outstanding common shares
l. 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 Derivative Instruments and Hedging
Activities", SFAS No. 134, "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.
m. Reclassifications: Certain items in the fiscal 1999 and 1998 financial
statements have been reclassified to conform to the fiscal 2000
presentation. Such reclassifications have no effect on either net income or
stockholders' equity.
F-9
<PAGE>
Note 3 - Reclassification of Investments:
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 the
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's investment is increased by gains and
additional investments, and decreased by losses and distributions. These
securities are now treated as marketable securities available for sale. 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 gains on the
VLDC and Digital securities during fiscal 2000 amounted to $20,250,701. Related
deferred taxes amounted to $8,100,280.
Note 4 - Marketable Securities Available for Sale:
The Company's marketable securities available for sale at May 31, 2000 and 1999
are as follows:
Gross Estimated
Unrealized Fair
Cost Gains Value
2000
Virtuallender.com $ 1,374,364 $11,563,136 $12,937,500
Digital Bridge, Inc. 453,060 8,687,565 9,140,625
Workfire.com, Inc. 803,717 903,717
----------- ------------
$ 2,731,141 $20,250,701 $22,981,842
=========== ============ ============
1999
Virtual Wagering.com $ 13,000 $ $ 13,000
Digital Bridge, Inc. 50,000 50,000
Workfire 264,000 264,000
----------- ------------ ------------
$ 327,000 $ - $ 327,000
=========== ============ ============
F-10
<PAGE>
Note 4 - Marketable Securities Available for Sale (Continued):
Subsequent to year end, the estimated fair value of the Company's available for
sale securities declined by approximately $9,4000,000.
Note 5 - Property and Equipment:
The Company's property and equipment consists of the following at May 31, 2000
and 1999:
2000 1999
Computers $71,948 $ 16,613
Office furniture 27,550 8,042
-------- --------
99,498 24,655
Less accumulated depreciation (20,088) (4,071)
-------- --------
$79,410 $ 20,584
======== ========
Depreciation expense amounted to $16,017 and $4,071 in the years ended May 31,
2000 and 1999, respectively.
Note 6 - Business Acquisitions:
During the fiscal year 2000, the Company entered into a stock purchase agreement
with Investor Packages and Market Awareness Consultants purchasing all the
outstanding stock of these private companies. The purchase prices were $500,000
and $171,600, payable in the Company's stock, respectively. The Company issued
29,412 and 15,000 shares, respectively, for each entity.
Also during the fiscal year 2000 the Company finalized an asset purchase
agreement with Sierra Net, Inc., an internet service provider, servicing parts
of California and Nevada. Total consideration for this purchase consisted of
$450,000 in cash and the issuance of 153,846 shares of the Company's common
stock.
F-11
<PAGE>
Note 6 - Business Acquisitions (Continued):
The acquisitions during fiscal 2000 have been accounted using the purchase
method, and accordingly the purchase prices have been allocated to the assets
purchased and liabilities assumed upon their fair values at the dates of
acquisition. The portions of the purchase prices allocated to goodwill are being
amortized on a straight-line basis over 15 years. Intangible assets other than
goodwill are being amortized on a straight-line basis over five years.
The purchase price for these acquisitions were allocated as follows:
Market
Investor Awareness Sierra
Packages Consultants Net, Inc.
Websites $ 500,000 $ 171,600
Customer List $ 1,800,000
Goodwill 1,200,000
Purchase price $ 500,000 $ 171,600 $ 3,000,000
Amortization expense in the year ended May 31, 2000 for goodwill and intangible
assets other than goodwill amounted to $15,000 and $123,580, respectively.
Note 7 - Provision For Income Taxes:
The components of the provision for income taxes consist of the following
benefits (expenses) for fiscal 2000, 1999, and 1998:
2000 1999 1998
Current
Federal ($2,501,000) ($125,400) ($17,300)
State (644,000) (22,150) (3,150)
------------ --------- ----------
Total current
tax provision (3,145,000) (147,550) ($20,450)
------------ --------- ----------
Deferred
Federal 1,499,000 16,000 (5,700)
State 368,000 2,860 (1,050)
------------ --------- ----------
Total deferred
tax provision 1,867,000 18,860 (6,750)
------------ --------- ----------
Total provision for
income taxes ($1,278,000) ($128,690) ($27,200)
------------ --------- ----------
F-12
<PAGE>
Note 7 - Provision For Income Taxes (Continued):
A reconciliation of the provision for income taxes at May 31 to the Federal
statutory tax rate is as follows:
2000 1999 1998
Income before taxes $ 3,214,457 $ 285,407 $ 61,947
----------- ----------- ----------
Statutory Federal taxes
at graduated rates 1,092,915 111,309 15,487
State taxes-net of
Federal benefit 187,544 15,390 4,108
Other-net (2,459) 1,991 7,605
----------- ----------- ----------
$ 1,278,000 $ 128,690 $ 27,200
=========== =========== ==========
The pre-tax amount of unrealized gains on marketable securities available for
sale for fiscal 2000 was $20,250,701. The associated deferred tax expense was
$8,100,280 resulting in a net-of-tax amount of $12,150,421 classified as other
comprehensive income.
There were no components of other comprehensive income for fiscal 1999 or 1998.
Deferred income tax assets and liabilities have been classified in the balance
sheet in accordance with the nature of the item giving rise to the temporary
differences. The components of deferred tax assets and liabilities as of May 31,
2000 and 1999 are as follows:
2000 1999
Deferred tax assets:
Tax basis in excess of financial
basis of marketable securities
held for trading $ 1,759,038
California franchise tax effect 85,968
Difference in amortization 33,153
Other $ 12,110
----------
$ 1,878,159 $ 12,110
------------ ----------
F-13
<PAGE>
Note 7 - Provision For Income Taxes (Continued):
2000 1999
Deferred tax liabilities:
Financial basis in excess of tax
basis of marketable securities
available for sale (8,100,280)
Other 255,366
------------
(8,355,646) -
------------ ---------
Net deferred tax asset (liabilities) ($6,477,487) $ 12,110
============ =========
Note 8 - Preferred Stock:
In addition to the Company's common 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 are issued or
outstanding at May 31, 2000, 1999 or 1998.
Note 9 - Related Party Transactions:
For the years ended May 31, 2000 and 1999, 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.
During fiscal year 2000, Digital Bridge, Inc. provided website maintenance
services to the Company amounting to approximately $165,000.
F-14
<PAGE>
Note 10 - 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 has
been made in full.
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 pro
rated the consulting income to record the income as earned as services are
rendered. Deferred revenues as of May 31, 2000 amounted to $854,167.
Note 11 - 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.
Note 12 - 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.
Of the total revenues of approximately $7.6 million for fiscal 2000,
approximately $4 million relates to one customer, and approximately $1.9 million
relates to a different customer.
Investments are discussed in notes 2d and 4.
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.
F-15
