Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended:
June 30, 1996
Commission file number: 33-15682-LA
Name of small business issuer in its charter: Systems West, Inc.
State or other jurisdiction of incorporation or organization:
Colorado
IRS Employer Identification No.: 94-3026545
Address of principal executive offices:
3239 Imjin Road, Marina, CA 93933
Issuer's telephone number: (408) 582-1050
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 at least the past 90
days. Yes X
Issuer's revenues for its most recent fiscal year: $1,333,477
Aggregate market value of voting stock held by non-affiliates as
of September 18, 1996 (computed by using the average of the bid
and ask prices for the Company's Common Stock as quoted in the
National Quotation Bureau, Inc., commonly known as the "Pink
Sheets") (based on 692,374 shares of nonaffiliated stock
outstanding): $160,977
Shares of common stock, no par value, outstanding as of September
18, 1996: 1,066,748
Documents incorporated by reference: None
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(A) BUSINESS DEVELOPMENT.
Systems West, Inc. (the "Company" or "Systems West") is organized
under the laws of the State of Colorado and continues the
business of its predecessor, Systems West, Inc., a corporation
formed under Nevada law in December 1986. The Company's
executive offices are located at 3239 Imjin Road, Marina,
California, 93933, and its telephone number is (408) 582-1050.
Its mailing address is Post Office Box 222019, Carmel, California
93922.
The Company manufactures weather satellite ground receiving
stations. These stations receive radio transmissions directly
from weather satellites containing pictures of the earth and its
weather and convert these transmissions into high-resolution
images of and data about the earth and its atmosphere.
The Company produces a unified set of products that are delivered
in a broad range of configurations to meet specific customer
requirements for weather satellite data. Common technology is
used in all systems ranging from the low-cost Model 2080 land
ground station through the high-end Model 6000 High Resolution
Picture Transmission (HRPT) station. The use of common
technology has reduced development and production costs and
allows the Company to produce a highly competitive product that
can be tailored to specific customer needs.
In 1994, Systems West, Inc. returned a profit of $2,003 on a
revenue base of $1,154,480. In 1995, Systems West sustained a
loss of $188,586 on a revenue base of $717,608. In 1996, Systems
West returned a profit of $233,889 on a revenue base of
$1,333,477.
Revenues of the Company relating from business are itemized in
the Statement of Operations for the Company. See "Financial
Statements."
(B) BUSINESS OF ISSUER.
Systems West, Inc. produces systems that read images from weather
satellites. The Company's receivers are configured according to
the source of the transmission.
(1) Model 2080 Weather Information Processor. A desktop weather
satellite data receiving system that has become an industry
leader in its technology and reliable operation.
(2) Model 4080 Weather Information Processor. A mobile and
marine system weather satellite data receiving system that has
become popular for use on luxury yachts, fishing vessels, ocean
racing vessels, and military ships and mobile facilities.
(3) Model 5380 Digital Readout Station. A high-performance
digital system that reads out images from high-resolution
satellite systems. Systems West digital stations are installed
in Japan, the United States, and throughout Latin America.
(4) Model 6000 Digital Readout Station. A high-performance
digital system that reads out images from high-resolution polar-
orbiting satellite systems.
Satellite Technology and Weather Applications
Background. Weather satellites provide technologically-advanced
weather and ocean information to support the public safety, and
to benefit a variety of commercial operations such as aviation
and marine operations. Receipt of images from these satellites
requires receiver and computer systems to receive and process
data.
Marketplace. The Company's satellite weather satellite ground
station systems are intended to address the need of a perceived
market niche for an integrated, affordable, high-quality
satellite data collection, computing and display system.
Technology. The Company's Digital and Analog Systems use
existing microcomputer technology, largely off-the-shelf
components, and Company-developed, proprietary computer hardware,
radio receiver hardware, and computer programs to receive and
process and display satellite data.
(1) Off-the-Shelf Technology
Personal Computer Technology. The wide use of personal computers
has resulted in the availability of powerful computing systems
capable of supporting sophisticated user applications, including
satellite image acquisition and image processing, at reasonable
costs. Presently, the power of these systems increases every
year, while the prices have continued to decline. The Company and
its customers have benefited from these price declines, allowing
the competitive marketing of its products.
(2) Company Proprietary Technology
Company proprietary technology consists of special hardware
devices designed and produced by the Company. The use of its
common technology philosophy has allowed the Company to maintain
leading-edge technology while offering competitive systems. It
has also expanded the proprietary technology base of the Company
with products that can be independently marketed.
Data Manager Card. The Data Manager Card is an intelligent
processor card designed to manage all of the major analog
satellite data streams into and out of the computer while the
computer is largely available for other tasks. The Data Manager
Card contains five micro-computers and its own memory bank, each
in the form of tiny chip-size units. The Data Manager Card is
programmed to enable the system to handle a number of data
streams simultaneously.
Digitally-Tuned Receiver. The digitally-tuned weather satellite
signals receiver provides a compact computer-tuned receiver. The
Systems West, Inc. digitally-tuned receiver has been
significantly upgraded during this fiscal year, providing a more
reliable and cost-competitive product. The digitally-tuned
receiver manufactured by the Company has become the basis of all
of the Company's systems.
Digital Signal Processing Card. This card provides for the very-
high-speed processing of the high-data-rate digital broadcasts
from advanced weather satellites. The capability of the card has
been enhanced and generalized to process data from many different
satellites. The card has been upgraded during this year, allowing
the processing of high-volume data broadcasts from the newly-
launched GOES-8 satellite.
Image Processing System. The Company has developed advanced image
processing software to interpret satellite images.
Serial Data Transfer Card. The serial data transfer card is a new
product, introduced in 1994. The card allows the capture of or
the transmission of high-speed serial data by a personal
computer. The card is designed to work with high-speed digital
telemetry applications such as T1 telephone service and satellite
digital broadcasts. The card performs as a digital data simulator
for product development, and as the primary element of a raw data
telemetry recorder using Systems West, Inc. software.
Product Development
During the past year the product line has been upgraded to the
new OS/2 operating system to expand the functionality of its
digital system.
Production
Components used in the Company's products are manufactured by
third-party subcontractors. They are assembled and tested by the
Company prior to shipment.
Marketplace
The market for Company products includes national and local
governments, specialized commercial users such as shipping
companies, fishing industries, oil and mineral exploration
companies, small radio/television stations and public utility
companies.
International Weather Services. In the international weather
services market, the WMO in Geneva has a membership of 114
nations with requirements for the products currently produced by
the Company. The Company has been successful selling to this
market.
Global Fishing and Marine. Racing yachts, fishing vessels, and
open-ocean cruising vessels have been an expanding market for
Systems West, Inc. systems. The Company systems have been
deployed on racing boats that have participated in the Whitbread
around-the-world race, the Globe Challenge around-the-world race,
and in a variety of pleasure craft involved in racing and in open
ocean cruising worldwide.
North American Market. In the North American market, users
include small television stations, public utilities and
exploration companies. Military users include the United States
Army and Canadian Navy, and weather services providers.
Military Market. Systems West, Inc. systems are gaining a strong
reputation for consistent and reliable operation in the military
market. The past year has seen a significant market growth with
the U.S. Army. The Company is also delivering product to
overseas military and naval organizations including the British
Meteorological Office for the Royal Air Force. The proven rugged
designs of Systems West, Inc. systems are believed to provide a
continued strong growth in military systems.
Competition. The Company is marketing its Series 4080 and 2080
Systems in a price range of from $15,500 to $22,750. Depending
upon the hardware and software capabilities which the customer
orders, the Company is marketing the digital systems in a price
range of $50,000 or higher.
There are at least three major suppliers of "top-end" systems for
handling satellite data. These companies are well capitalized.
They focus on systems which are much larger and much more
expensive (mostly in the $100,000 to $500,000 range) than those
of the Company. Three of these larger companies are trying to
move into the lower cost microprocessor-based market targeted by
the Company and there is no assurance that the Company will be
able to effectively compete against them. The Company strategy
has been to substantially improve the performance of its "top-
end" products and to seek partners and alliances to improve its
market position.
Since the Company started marketing its initial products, a
number of other small companies have appeared with products which
copy the features of the Company's products, however few have
survived. Management views this competition as a beneficial
development and at the same time one for concern. The appearance
of competition helps validate the existence of the market and
assist in the development of the market. The competition also
provides additional opportunities for customer education to
create and develop the market. However, the marketplace may
become overpopulated with vendors compared to the perceived
customer base.
Manufacturing and Sources of Raw Materials
The Company has contracted with unaffiliated third parties to
manufacture component systems. The Company integrates the
manufactured components with Company-produced software products
and maintains a quality control program whereby Company personnel
test and inspect the products prior to delivery. While the
Company has multiple sources for most of its purchased materials
and components, there is some reliance on small numbers of
outside production sources and, therefore, risk of delay in the
delivery of key components.
Government Regulation
The Export Administration Act of 1979 (the "Export Act") contains
the basic provisions for U.S. export control. This act has been
amended by the Export Administration Acts of 1981 and 1985 and is
supplemented by the U.S. Export Administration Regulations issued
by the U.S. Department of Commerce. The Export Act and the
Regulations list three general policy guidelines for the use of
export controls, providing that export controls should be applied
to exports which:
1. Would make a significant contribution to the military
potential of other countries which would be detrimental to U.S.
national security;
2. Are in short supply in the United States and are in demand
abroad; or
3. Can significantly further the foreign policy of the United
States or fulfill its international obligations.
It is the stated policy of the Congress to encourage trade with
all countries with which the United States has diplomatic or
trading relations, except those countries with which trade has
been determined by the President to be against the national
interest.
The Export Administration Regulations require the Company to
apply for export licenses authorizing the export of the Company's
products to certain foreign countries. The Company has
registered with the Department of Commerce and received GTE
license D70504, effective April 22, 1987, allowing temporary
exports for use abroad of the Company's systems. Licenses for
permanent export of the Company's systems are in part covered by
General Licenses which authorize export without application, and
in part require a validated license for each specific export
issued pursuant to an application filed by the Company. An
export application is made as each new contract for the sale of
the Company's products is consummated. Thereafter, the
application review procedure takes approximately 60 days.
License approval in these cases will depend on the ultimate
consignee and the particular end use.
The Export Administration Regulations provide advisory notes as
to the likelihood of export licenses being granted for certain
commodities and destinations. It is fully expected that export
authorization will be granted for the Company's proposed systems
to all of its planned markets. Denial of an individual validated
license is not expected for the Company's currently planned
markets but even if such denial did occur, it is likely that it
would only affect a minimum number of transactions.
Patents, Trademarks and Copyrights
The Company does not have any patent or trademark protection for
its products or name. The Company relies on copyright protection
for its proprietary software.
Significant Customers
The United States Army and the Colombian Civil Aviation Authority
are significant customers, representing 54% of total sales.
Export Sales
For the year ended June 30, 1996, revenue from foreign sales
totaled $687,000 for 52% of the total revenue. Customers
included sales to Europe, Asia, South America, Mexico and
Canada.
Employees
The Company currently has 9 full-time employees.
ITEM 2. PROPERTIES
The Company owns a limited inventory of parts and components,
test equipment to test and check out final systems, and
furniture, fixtures and development computer systems to support
its office and development staff. The Company moved to larger
facilities in April 1996 and presently leases 5,406 square feet
of office space from an unaffiliated party at a monthly base
rental of $3,010.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Routine election of the Board of Directors was submitted to a
vote of shareholders on May 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(A) MARKET INFORMATION
The principal market on which the Registrant's Common Stock is
traded is the over-the-counter market. The Registrant's Common
Stock is quoted in the "Pink Sheets" maintained by the National
Daily Quotation Bureau, Inc.
The range of high and low bid quotations for the Company's Common
Stock on a quarterly basis is shown below. Prices are inter-
dealer quotations as reported by the National Quotation Bureau,
Inc., and do not necessarily reflect retail markups, mark downs
or commissions, nor actual sales.
High Low
Quarter ended Bid Bid
September 30, 1994 $.25 $.125
December 31, 1994 $.25 $.125
March 31, 1995 $.25 $.125
June 30, 1995 $.25 $.0625
September 30, 1995 $.0625 $.0625
December 31, 1995 $.0625 $.0625
March 31, 1996 $.09375 $.09375
June 30, 1996 $.15625 $.15625
On September 18, 1996, the bid price for a share of the Company's
Common Stock was $.155.
(B) HOLDERS.
The number of record holders of the Company's Common Stock, no
par value, as of September 18, 1996 was 787. This number does
not include an indeterminate number of shareholders whose shares
are held by brokers in "street" name.
(C) DIVIDENDS.
The Company has not paid a dividend with respect to its Common
Stock and does not intend to pay a dividend in the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Results of Operations
Fiscal Year 1995 compared to 1994
The Company has completed a profitable fiscal year 1996 with
revenue of $1,333,477 and profit of $233,899 or $0.22 a share.
This is compared to a loss in fiscal year 1995 of $188,586
against revenue of $717,608, and a profit in fiscal year 1994 of
$2,003 against revenue of $1,154,480.
Resources in fiscal year 1995 were devoted to funding project
over-runs for a major project in India and for supporting
development costs for new product supporting the new GOES
satellite systems of the United States. While the Company
sustained a substantial loss, this effort positioned the company
to provide improved product offering in fiscal year 1996 and
beyond.
Fiscal Year 1996 compared to 1995
In the fiscal year 1996, just ended, the strong performance is
attributed to almost tripling the resources dedicated to
marketing, resulting in substantially more proposal opportunities
from which to select those projects best suited to the Company s
products. This, in turn, resulted in improved gross margins from
35% in 1994 and 17% in 1995 (abnormal due to the previously
stated problems), to 54% in 1996. Four major contracts, one to
the British Meteorological Office, one to the U.S. Army, and two
to Japanese clients were successfully completed, and it is
anticipated that additional opportunities will result from these
references. New and expanded marketing opportunities have been
opened up in Asia and South America. Fiscal year 1996 year-end
backlog was $380,000 with over $2,500,000 in outstanding
proposals for work. The improved revenue and profit position has
allowed the Company to reduce its current liabilities and improve
its current ratio from 0.73 to 1.27.
To improve management, we have begun hiring highly qualified
middle managers with the background and skills to move into
senior management positions, providing a younger management team
and bringing renewed energy and new directions to the Company.
We are striving to position the Company to be a stronger
competitor in the marketplace in management, marketing, and
technical competence.
Research and development remains strong. Development costs are
charged against actual contracts, and are expensed, as incurred,
to cost of sales.
It is intended to maintain the Company s marketing and
development momentum into the new fiscal year. At the same time,
additional investors and/or merger partners are being sought to
accelerate and strengthen the Company s ability to capitalize on
the significant domestic and international opportunities which
are known to exist for it s established products and reputation.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements follow the signature page of this Annual
Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
During the three most recent years, the principal independent
accountant for the Company has not resigned, declined to stand
for re-election or been dismissed.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT.
(A) (B) IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND
SIGNIFICANT EMPLOYEES.
Directors hold office until the next annual meeting of share-
holders and until a successor is elected and qualified or their
prior resignation. Executive officers are appointed annually by
the Board of Directors and hold office until their successors are
duly elected and qualified.
During the fiscal year ended June 30, 1995, Dr. William E. Hubert
retired as Chairman of the Board, but has retained his position
as Director. Mr. Douglas S. Timms was appointed by unanimous
vote of the Board as a Director and Chairman of the Board pending
formal election by the shareholders. Mr. Timms was formally
elected at the annual shareholder meeting May 31, 1996.
The directors and executive officers of the Company are as
follows:
Name Age Position
Mr. Douglas S. Timms 64 Chairman of the Board
and Director
Dr. Kenneth W. Ruggles 64 President, Treasurer
and Director
Dr. E. R. Reins 70 Vice President
Engineering,
Secretary and Director
Dr. William E. Hubert 73 Vice President Consulting
and Director
No arrangement exists between any of the above officers and
directors pursuant to which any one of those persons was elected
to such office or position.
BUSINESS EXPERIENCE OF OFFICERS, DIRECTORS AND SIGNIFICANT
EMPLOYEES.
Mr. Douglas S. Timms, Chairman of the Board and Director. Mr.
Timms has previously been President and CEO of international
engineering groups with annual sales in the $100 to $400 million
range. He has also been an outside director of a number of
smaller technology companies, where he has successfully
spearheaded their development into major international
corporations. Mr. Timms is currently Chairman of the Board of
Tyrol International, Cleveland, GA.
Dr. Kenneth W. Ruggles, President, Treasurer and Director. Dr.
Ruggles is an executive with a background in private business and
in government. He brings high-technology Company management
skills to the Company. From February 1978 to March 1986, Dr.
Ruggles was employed by Global Weather Dynamics, Inc. ("Global"),
a wholly-owned subsidiary of Ocean Data Systems, Inc. located in
Monterey, California, serving as president from June 1982 to
March 1986. Global is engaged in the business of building large
aviation and weather message switching systems (computer systems
which sort incoming wire messages and route them to appropriate
parties, i.e., in effect an electronic "post office") and
operating a computer data base service. Global markets its
products to airlines, aircraft operators, government weather
services and civil aviation authorities throughout the world.
Ocean Data Systems, Inc., the parent of Global, is also currently
engaged in the health care computer services industry through
another wholly-owned subsidiary. From April 1986 to March 1987,
Dr. Ruggles was the vice president of Ocean Data Systems, Inc.,
located in Carmel, California.
Dr. Ruggles received his Ph.D. in Meteorology from the
Massachusetts Institute of Technology located in Cambridge,
Massachusetts in 1969, a Master of Science degree in Meteorology
from the United States Naval Postgraduate School, located in
Monterey, California, in 1960 and a Bachelor of Science degree
from the United States Naval Academy, located in Annapolis,
Maryland, in 1954. Dr. Ruggles devotes 100% of his time to the
business affairs of the Company.
Dr. E. R. Reins, Vice President Engineering, Secretary and
Director. Dr. Reins has been active in systems and hardware
consulting in the fields of computer display, security and
communications for the past eight years. From July 1983 to
January 1985, Dr. Reins was chairman of the board of directors of
Codercard, Inc., located in State Line, Nevada, a company that he
helped found to manufacture and distribute a computer security
device which he invented. From September 1983 to January 1984,
Dr. Reins served as president of Codercard, Inc. Dr. Reins
resigned as president of Codercard in January 1984 and entered
into a consulting contract with Codercard, Inc. under the name of
Reins & Reins, a partnership. In August 1985, Dr. Reins resigned
as a consultant for Codercard, Inc. From 1985 to 1987 Dr. Reins
devoted time to family, travel and real estate interests.
From November 1978 to September 1983, Dr. Reins was president and
owner of Drum Systems, a sole proprietorship located in Monterey,
California. Drum Systems was founded by Dr. Reins for the
purpose of providing consulting and design services to industry
and government in the fields of computer display and
communication development. From November 1968 to October 1978,
he was the senior civilian at the Navy's Fleet Numerical Weather
Center, Monterey, California where he was director of engineering
and technical advisor to the Commanding Officer. Dr. Reins
received his Ph.D. in Human Behavior with an emphasis on
management leadership from LaJolla University in LaJolla,
California in 1982 and a Bachelor of Science degree in
Mathematics from California State Polytechnic College in San Luis
Obispo, California in 1955.
Dr. William E. Hubert, Vice President Consulting and Director.
Dr. Hubert has many years of experience in military and
commercial meteorology and oceanography. Dr. Hubert is an
internationally-known Marine Meteorologist and Oceanographer with
26 years experience as a specialist in the U.S. Naval Weather
Service. He was Commanding Officer of the Fleet Weather Central
at Pearl Harbor and had weather services responsibility for the
Pacific Ocean. In this position he was also responsible for
recovery forecasting for the Apollo missions. From August 1972
until April 1987, Dr. Hubert served as chief scientist with Ocean
Data Systems, Inc., located in Rockville, Maryland, and its
wholly-owned subsidiary Global Weather Dynamics, Inc., a weather
services firm located in Monterey, California. Dr. Hubert has
also served as senior scientist of the Navy's Fleet Numerical
Weather Center (1969 to 1972), NATO Meteorological Liaison
Officer to Europe in Oslo, Norway (1961 to 1963) and Chief
Meteorologist of the Pacific Missile Range, located in Pt. Mugu,
California (1958 to 1961). Dr. Hubert received a FILOSOFI
LICENTIAT degree (Ph.D. equivalent) in Meteorology from the
University of Stockholm in 1954 and a Master of Science degree in
Aerological Engineering from the United States Naval Postgraduate
School, located in Monterey, California in 1950.
Dr. Hubert is a recognized international expert in meteorology
and oceanography and has written many scientific works in these
areas.
(E) COMPLIANCE WITH SECTION 16A. Not applicable.
DIRECTORSHIPS.
No director of the Company serves as a director of any other
company which has a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934 or which is
subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment
Company Act of 1940.
(C) FAMILY RELATIONSHIPS.
There are no family relationships among any of the Company's
officers and directors.
(D) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
No officer, director, significant employee, promoter or control
person of the Company has been involved in any event of the type
described in Item 401(d) of Regulation S-B during the past five
years.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation paid or accrued by the Company to or for the account
of the Chief Executive Officer and each of the four other most
highly compensated Executive Officers of the Company for services
rendered in all capacities during each of the Company's fiscal
years ended June 30, 1994, 1995, 1996:
<TABLE>
<CAPTION>
Annual Compensation
Long Term Compensation
------------------------------------
----------------------------------
(a) (b) (c) (d) (e) (f)
(g) (h) (i)
Other Annual
Restricted Options/ LTIP All Other
Name and Position Year Salary Bonuses ($) Compensation Stock
Awards SARS Payouts ($) Compensation
----------------- ---- ------ ---------- ------------
- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
Mr. Douglas Timms, 1996 -- -- $12,000 --
-- -- --
Chairman of the Board 1995 -- -- $2,500 <F1> --
-- -- --
Dr. E. R. Reins, 1996 $12,434 -- -- --
-- -- --
Director 1995 $14,511 -- -- --
-- -- --
1994 $30,985 -- -- --
-- -- --
Dr. Kenneth W. Ruggles, 1996 $70,000 $125 -- --
-- -- --
Chief Executive Officer 1995 $37,187 <F2> -- -- --
-- -- --
1994 $62,084 -- -- --
-- -- --
<F3>
__________
<FN>
<F1>
Mr. Timms accepted payment of one-half his director's fee, or $500 per month,
for the period February 1995 to June 1995.
<F2>
August 1, 1994 to January 15, 1995, Dr. Ruggles worked voluntarily at reduced
compensation due to the weak performance of the
Company.
<F3>
No executive officer of the company received compensation in excess of $100,000
during any of the three most recent fiscal
years. No compensation was paid to Dr. Hubert during the past three fiscal
years.
</FN>
</TABLE>
DEFERRED COMPENSATION OF OFFICERS AND DIRECTORS; FORGIVENESS OF
ACCRUED COMPENSATION AS CONTRIBUTIONS TO CAPITAL
In 1988, the Company had agreed to pay salaries to Drs. Ruggles
and Reins in the amount of $80,000 each per year, plus
reimbursement of out-of-pocket expenses incurred by each. Dr.
Hubert was to receive consulting fees based on hours actually
worked for the Company. In order to preserve its cash assets,
the Company, with the agreement of Drs. Ruggles, Reins and
Hubert, deferred substantial salary and consulting fee payments
to these officers and directors over the periods from 1988
through 1990. During the fiscal year ended June 30, 1990, these
officers agreed to discontinue the accrual of salary effective
June 30, 1989, and agreed to a reduction in their compensation.
As of December 1, 1989, Dr. Ruggles' salary was temporarily
reduced to $40,000 per year pending improved cash flow, and Dr.
Reins compensation was set at the rate of $19.23 per hour. As of
June 30, 1991 and 1992, amounts representing deferred
compensation owing to officers and directors were $127,532.
During the fiscal year ended June 30, 1991, Drs. Ruggles and
Reins forgave a total of $105,000 in salaries accrued during
prior years. During the fiscal year ended June 30, 1992, Dr.
Ruggles forgave $13,333 in salary accrued during that year. The
amounts of compensation forgiven by these officers and directors
have been recorded as additional contributions to the capital of
the Company. As of June 30, 1996, Drs. Ruggles, Reins and Hubert
had accrued salaries and other compensation owing to them of
$52,500, $52,500 and $22,532, respectively.
OPTIONS AND WARRANTS
No options or warrants were issued to Executive Officers during
fiscal year ending June 30, 1996. The following table sets forth
certain information regarding options and warrants to purchase
shares of Common Stock issued to Executive Officers of the
Company listed in the Executive Compensation Table during the
fiscal year ending June 30, 1995.
Option/Warrant Grants in 1995
% of Total
Options/
Warrants
Options/ Granted to
Warrants Employees Exercise Expiration
Name Granted in 1995 Price Date
Douglas S. Timms 120,000 100% $.18 1-23-2000
In addition to options granted to Mr. Timms in 1995, Dr. Ruggles
and Dr. Reins hold options granted to them in fiscal year 1994.
As of June 30, 1996 Dr. Ruggles holds 100,000 options at an
exercise price of $.10 per share, and Dr. Reins holds 100,000
options at an exercise price of $.10 per share. These options
expire 8-2-98. Dr. Hubert was granted 20,000 options in 1994 and
exercised his options on February 24, 1994 at a price of $.10 per
share.
AGGREGATED OPTIONS/SAR EXERCISE AND FISCAL YEAR-END OPTION/SAR
VALUE TABLE.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End at FY-End
Shares
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- -----------------------------------------------------------------
K. Ruggles 0 0 100,000/0 $5,625/0
E. Reins 0 0 100,000/0 $5,625/0
D. Timms 0 0 120,000/0 0/0
LONG TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE
The Company does not have any LTIP plans.
COMPENSATION OF DIRECTORS
Other than the Chairman of the Board, the directors of the
Company do not receive compensation for attendance at Board
meetings or other service to the Company in their capacity as
directors. Direct, itemized expenses incurred by directors in
attending meetings and promoting the business of the Company are
reimbursed to directors. The Chairman of the Board is
compensated at a director's fee of $1000 per month.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-
CONTROL ARRANGEMENTS.
Employment Contracts. Currently, there are no written employment
agreements between the Company and any officer or director,
except for a letter agreement with Mr. Timms at the time of his
appointment to Chairman of the Board. Compensation of officers
and directors is determined by the Company's Board of Directors
and is not subject to stockholder approval. Effective July 1,
1996 Dr. Ruggles' salary is $75,000 per year. At such time as
operating revenues are adequate, the Company has agreed to
restore Dr. Ruggles' base salary to $80,000 per year. Dr. Reins'
compensation for part-time work is $28.85 per hour. Mr. Timms'
director's fee is $1000 per month.
Termination of Employment and Change-in-Control. The Company has
no compensation plan or arrangement with respect to any executive
officer which plan or arrangement results or will result from the
resignation, retirement or any other termination of such
individual's employment with the Company. The Company has no
plan or arrangement with respect to any such persons which will
result from a change in control of the Company or a change in the
individual's responsibilities following a change in control.
REPORT ON REPRICING OF OPTIONS/SARS
Not applicable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table contains information regarding those persons
known by the Company to be the beneficial owners of more than
five percent of the Company's no par value Common Stock, as of
September 18, 1996. As of September 18, 1996, there were
1,066,748 shares of Common Stock outstanding. The listed
shareholders hold the shares directly and exercise sole
investment and voting powers with regard to their respective
shares:
Amount and
nature of
Name and address beneficial Percent of
Title of Class of beneficial owner ownership class (1)
- -----------------------------------------------------------------
Common Stock, Kenneth W. Ruggles 235,000 (2) 20.1
No par value 3239 Imjin Road
Marina, CA 93933
Common Stock, E. R. Reins 195,625 (3) 16.8
No par value 3239 Imjin Road
Marina, CA 93933
Common Stock, William E. Hubert 143,750 (4) 13.5
No par value 1131 South 12th St.
Montrose, Co 81401
Common Stock, Douglas S. Timms 120,000 (5) 10.1
No par value 28316 Plantation Dr.
Atlanta GA 30324
- ----------
(1) In calculating the percentage of class, shares of preferred
stock outstanding, which are convertible to shares of Common
Stock at the rate of 18 shares of Common Stock for each share of
preferred stock, have been excluded from the total number of
outstanding shares except to the extent that Dr. Ruggles' wife
owns shares of preferred stock. At September 18, 1996, there
were a total of 813 shares of Series A Preferred Stock
outstanding which are convertible into a total of 14,625 shares
of Common Stock at the option of the holders.
(2) Does not include 3,375 shares of Common Stock issuable upon
conversion of 187.5 shares of Series A Preferred Stock owned by
Dr. Ruggles' wife. Includes 100,000 shares of common stock
issuable pursuant to exercise of common stock options.
(3) Includes 100,000 shares of common stock issuable pursuant to
exercise of common stock options.
(4) Does not include 3,375 shares of Common Stock issuable upon
conversion of 187.5 shares of Series A Preferred Stock owned by
Dr. Hubert's wife as to which Dr. Hubert disclaims beneficial
ownership.
(5) All shares are common stock issuable pursuant to exercise of
common stock options.
(B) SECURITY OWNERSHIP OF MANAGEMENT.
The following table contains information, as of September 18,
1996, regarding the shares of the Company's Common Stock
beneficially owned by its directors and by all officers and
directors as a group. Each shareholder or group owns the shares
directly and exercises sole investment and voting powers over the
shares set forth opposite their name.
Amount and
nature of
Name and address of beneficial Percent of
Title of Class beneficial owner ownership class (1)
Common Stock, Kenneth W. Ruggles 235,000 (2) 20.1
No par value 3239 Imjin Road
Marina, CA 93933
Common Stock, E.R. Reins 195,625 (3) 16.8
No par value 3239 Imjin Road
Marina, CA 93933
Common Stock, William E. Hubert 143,750 (4) 13.5
No par value 1131 South 12th St.
Montrose, CO 81401
Common Stock, Douglas S. Timms 120,000 (5) 10.1
No par value 28316 Plantation Dr.
Atlanta, GA 30324
Common Stock, All officers and 694,375 (6) 50.1
No par value directors as a
group (four persons)
- ----------
(1) In calculating the percentage of class, shares of preferred
stock outstanding, which are convertible to shares of Common
Stock at the rate of 18 shares of Common Stock for each share of
preferred stock, have been excluded from the total number of
outstanding shares except to the extent that Dr. Ruggles' wife
owns shares of preferred stock. At September 18, 1996, there
were a total of 813 shares of Series A Preferred Stock
outstanding which are convertible into a total of 14,625 shares
of Common Stock at the option of the holders.
(2) Does not include 3,375 shares of Common Stock issuable upon
conversion of 187.5 shares of Series A Preferred Stock owned by
Dr. Ruggles' wife. Includes stock options which could be
converted into 100,000 shares of common stock at some future
date.
(3) Includes stock options which could be converted into 100,000
shares of common stock at some future date.
(4) Does not include 3,375 shares of Common Stock issuable upon
conversion of 187.5 shares of Series A Preferred Stock owned by
Dr. Hubert's wife as to which Dr. Hubert disclaims beneficial
ownership.
(5) All shares are common stock issuable pursuant to exercise of
common stock options.
(6) Excludes shares referred to as excluded in footnotes (1) and
(4) of this table, but includes stock options issued to
principals which at some time could be converted into common
stock.
(C) CHANGES IN CONTROL
Management is not aware of any arrangements which may lead to a
change in control of the Company in the foreseeable future.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(A)-(C) TRANSACTIONS WITH MANAGEMENT AND OTHERS.
All material transactions between the Company and its management
or any affiliates of management during the two fiscal years ended
June 30, 1996, are described under "Item 10 - Executive
Compensation."
(D) TRANSACTIONS WITH PROMOTERS.
Not applicable.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Form
10-KSB immediately following the signature page:
Page
number
1. Report of Independent Certified Public
Accountants F-1
Balance Sheets - June 30, 1995
and 1996 F-2
Statement of Operations - for the years ended
June 30, 1995 and 1996 F-4
Statement of Changes in Stockholders'
Equity - For the years ended
June 30, 1995 and June 30, 1996 F-5
Statement of Cash Flows - for the years
ended June 30, 1995 and 1996 F-6
Notes to Financial Statements F-8
2. Financial statement schedules have been omitted because they
are not required or the information is included in the financial
statements and notes thereto.
3. Exhibits required to be filed are listed below and, except
where incorporated by reference, immediately follow the Financial
Statements.
Number Description
3.3 Articles of Incorporation (1)
3.4 Bylaws of Systems West I, Inc. (1)
3.5 Articles of Amendment to Articles of Incorporation -
May 11, 1990 (effecting name change) (1)
4.1(a) Specimen Unit Certificate (including Specimen
Certificate for Common Stock and Specimen Certificate
for Warrant) (1)
(b) Form of Warrant Agreement (1)
4.2 Form of Underwriter's Warrant (1)
10.3 Articles of Merger (1)
10.5 Form of Agency Contract (2)
10.6 Consulting Agreement - NASA - September 27, 1988 (2)
10.7 Lease - Office - August 8, 1988 (2)
10.8 1988 Stock Option Plan (3)
- ----------
(1) Incorporated by reference from the like named exhibits to the
Registrant's Registration Statement on Form S-18, No. 33-15-682-
LA.
(2) Incorporated by reference from the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 30, 1988.
(3) Incorporated by reference from the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 30, 1989.
- ----------
(b) During the last quarter of the period covered by this report
the Company filed no reports on Form 8-K.
(c) Required exhibits are attached hereto and are listed in Item
13(a)(3) of this Report.
<PAGE>
SIGNATURES
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.
SYSTEMS WEST, INC.
Registrant
9/25/96 Kenneth W. Ruggles, Principal
Executive Officer, Principal
Financial and Accounting
Officer and Director
(Signature)
9/25/96 E. R. Reins, Director
(Signature)
9/25/96 William E. Hubert, Director
(Signature)
9/25/96 Douglas S. Timms, Chairman
of the Board and Director
(Signature)
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Systems West, Inc.
We have audited the accompanying balance sheet of Systems West,
Inc. as of June 30, 1995 and 1996, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the
years 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits 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 audits provide 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 Systems West, Inc. as of June 30, 1995 and 1996, and the
results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting
principles.
August 9, 1996
Denver, Colorado CAUSEY DEMGEN & MOORE INC.
<PAGE>
SYSTEMS WEST, INC.
BALANCE SHEET
June 30, 1995 and 1996
ASSETS
1995 1996
--------- --------
Current assets:
Cash $ 3,215 $128,199
Accounts receivable, less allowance
for doubtful accounts of $14,735
in 1996 ($5,284 in 1995) 299,493 134,621
Costs and estimated earnings
on long-term contracts (Notes 2
and 5) 6,109 54,301
Inventories (Note 3) 78,489 78,136
Prepaid expenses 8,023 4,398
-------- --------
Total current assets 395,329 399,655
Furniture and equipment, less
accumulated depreciation of $56,707
in 1996 ($48,878 in 1995) 22,769 20,662
Prototype equipment, less
accumulated depreciation of $83,946
in 1996 ($64,305 in 1995) 40,009 45,708
Other assets 1,474 4,474
-------- --------
$459,581 $470,499
======== ========
See accompanying notes.
<PAGE>
SYSTEMS WEST, INC.
BALANCE SHEET
June 30, 1995 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1995 1996
---------- ----------
Current liabilities:
Note payable (Note 5) $ 130,000 $ -
Accounts payable 98,685 69,252
Billings on long-term contracts in
excess of costs (Note 2) 35,720 -
Deferred income 20,300 6,020
Accrued commission expense 35,983 5,527
Accrued warranty liability 7,000 37,000
Other accrued liabilities 68,545 48,003
Payable to officers/directors (Notes
4 and 5) 140,626 140,663
Current portion of capitalized lease
obligations (Note 7) 1,738 8,701
--------- ----------
Total current liabilities 538,597 315,166
Capitalized lease obligation (Note 7) 7,107 7,567
Commitments and contingencies
(Note 7)
Stockholders' equity (deficit) (Note 6):
Preferred stock, $.01 par value;
1,000,000 shares authorized,
Series A, 812.5 shares issued
and outstanding (liquidation
preference of $32,500) 8 8
Common stock, no par value;
5,000,000 shares authorized,
1,066,749 shares issued and
outstanding 1,703,746 1,703,746
Additional paid-in capital 160,435 160,435
Accumulated deficit (1,950,312) (1,716,423)
---------- ----------
Total stockholders' equity (deficit) (86,123) 147,766
---------- ----------
$ 459,581 $ 470,499
========== ==========
See accompanying notes.
<PAGE>
SYSTEMS WEST, INC.
STATEMENT OF OPERATIONS
For the Years Ended June 30, 1995 and 1996
1995 1996
---------- ----------
Sales (Note 9) $ 717,608 $1,333,477
Costs and expenses:
Cost of sales 594,407 614,997
Marketing 67,280 194,541
Research and development 13,618 29,592
General and administrative 197,499 252,012
Interest 33,390 8,446
----------- ----------
906,194 1,099,588
----------- ----------
Net income (loss) (Note 8) $ (188,586) $ 233,889
=========== ==========
Net income (loss) per
common share $ (.17) $ .22
=========== ==========
Weighted average
common shares 1,092,000 1,081,000
=========== ==========
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
SYSTEMS WEST, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended June 30, 1995 and 1996
Series A
Additional
preferred stock
Common stock paid-in Accumulated
Shares Amount Shares Amount capital
deficit
------------------
- ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
<C> <C>
Balance, June 30, 1994 812.5 $ 8 1,095,320
$1,708,889 $160,435 $(1,761,726)
Purchase and retirement
of treasury shares - - (28,571)
(5,143) - -
Net loss for the year - - - -
- (188,586)
----- ------ ---------
- ---------- --------
Balance, June 30, 1995 812.5 8 1,066,749 1,703,746
160,435 (1,950,312)
Net income for
the year - - - -
- - 233,889
----- ------ ---------
- ---------- --------
Balance, June 30, 1996 812.5 $ 8 1,066,749 $1,703,746
$160,435 $(1,716,423)
===== ====== =========
========== ======== ===========
See accompanying notes.
</TABLE>
<PAGE>
SYSTEMS WEST, INC.
STATEMENT OF CASH FLOWS
For the Years Ended June 30, 1995 and 1996
1995 1996
--------- --------
Cash flows from operating activities:
Net income (loss) $(188,586) $233,889
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 19,902 28,709
(Increase) decrease in receivables (267,558) 164,872
(Increase) decrease in costs and
estimated earnings on long-term
contracts 377,623 (48,192)
Decrease in inventories 10,545 353
Decrease in prepaid expenses 11,451 3,625
Increase (decrease) in accounts
payable 34,943 (29,433)
Increase (decrease) in billings on
long-term contracts in excess of
costs 35,720 (35,720)
Increase (decrease) in accrued
commission expense 25,090 (30,456)
Increase in other accrued liabilities 48,122 9,458
Increase (decrease) in deferred income 20,300 (14,280)
Increase in payable - officers/
directors 10,463 37
Gain on disposal of equipment - (4,355)
------- -------
Net cash provided by operating
activities 138,015 278,507
Cash flows from investing activities:
Acquisition of furniture and equipment (957) (7,788)
Acquisition of prototype equipment (14,845) (12,279)
Increase in other assets (258) (3,000)
Proceeds from sale of fixed assets - 5,181
------- -------
Net cash used in investing activities (16,060) (17,886)
Cash flows from financing activities:
Proceeds from line of credit 299,087 90,000
Payments on line of credit (503,775) (220,000)
Payments on capitalized lease
obligations (1,494) (5,637)
-------- --------
Net cash used in investing activities (206,182) (135,637)
-------- --------
(Continued on following page)
See accompanying notes.
SYSTEMS WEST, INC.
STATEMENT OF CASH FLOWS
For the Years Ended June 30, 1995 and 1996
(Continued from preceding page)
1995 1996
-------- -------
Net increase (decrease) in cash and cash
equivalents (84,227) 124,984
Cash and cash equivalents at beginning
of year 87,442 3,215
-------- -------
Cash and cash equivalents at end of
year $ 3,215 $128,199
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for
interest $ 24,590 $ 8,446
======== =======
Supplemental Schedule of noncash investing and financing
activities:
During the year ended June 30, 1995, the Company received
treasury stock in exchange for a reduction in accounts
receivable of $5,143.
During the year ended June 30, 1996, the Company entered
into a capital lease for prototype equipment amounting to
$13,060.
See accompanying notes.
<PAGE>
SYSTEMS WEST, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
1. Summary of significant accounting policies
Organization:
Systems West, Inc. (the Company), a Colorado corporation, was
organized on December 10, 1986. The Company has developed and is
marketing weather satellite ground receiver stations, as well as
providing consulting services to private industry and the U.S.
Government.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue recognition:
Income on long-term contracts is recognized on the percentage-of-
completion method. On construction-type contracts where the
percentage-of-completion method is used, costs and estimated earnings
in excess of progress billings are shown as a current asset. On long-
term governmental consulting contracts, income is recognized as
services are performed and billed, based on the related costs incurred
during each monthly billing period.
Advertising costs:
The Company expenses the costs of advertising as incurred.
Inventories:
Inventories are priced at the lower of cost or market, using the
first-in, first-out (FIFO) method and consist primarily of computer
and satellite parts and are subject to technical obsolescence.
Prototype equipment:
This equipment generally consists of computer equipment used to
develop prototypes of the Company's product. It has been capitalized
at cost as it has alternative future uses, and is depreciated using
the straight-line method over 5 years. This equipment is subject to
technical obsolescence.
SYSTEMS WEST, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
1. Summary of significant accounting policies (continued)
Research and development:
Company-sponsored research and development costs related to both
present and future products are expensed currently in accordance with
Statement of Financial Accounting Standards No.2. Therefore, the
Company's cost of acquisition and development of proprietary
technology is not reflected as an asset on the accompanying balance
sheet.
Furniture and equipment:
Furniture and equipment is recorded at cost. Depreciation commences
as items are placed in service and is computed on a straight-line
method over their estimated useful lives of 5 years.
Net income (loss) per common share:
The net income (loss) per common share is computed based upon the
weighted average shares outstanding during the period. Shares
convertible from preferred stock and warrants were not considered for
the year ended June 30, 1995 as their effect would be anti-dilutive.
Income taxes:
The Company provides for income taxes utilizing the liability approach
under which deferred income taxes are provided based upon enacted tax
laws and rates applicable to the periods in which the taxes become
payable.
Cash equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
receivables. The Company places its cash with high quality financial
institutions. At June 30, 1996, the balance at one financial
institution exceeded FDIC limits by $18,660. The Company provides
credit, in the normal course of business, to customers throughout the
United States and the world. The Company performs credit evaluations
of its customers and maintains allowances for potential credit losses.
SYSTEMS WEST, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
1. Summary of significant accounting policies (continued)
Fair value of financial instruments:
The carrying amount of cash and cash equivalents approximates fair
value because of the short maturity of those instruments.
Reclassifications:
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1996 presentation.
2. Costs incurred and estimated earnings on uncompleted contracts
Costs incurred and estimated earning on uncompleted contracts are as
follows at June 30, 1995 and 1996:
1995 1996
-------- --------
Costs incurred on uncompleted
contracts $121,447 $299,339
Estimated earnings 23,624 157,753
-------- --------
145,071 457,092
Less billings to date (174,682) (402,791)
-------- --------
Total $(29,611) $ 54,301
======== ========
Included in the accompanying
balance sheet under the
following captions:
Costs and estimated earnings on
long-term contracts $ 6,109 $ 54,301
Billings on long-term contracts
in excess of costs (35,720) -
-------- --------
Total $(29,611) $ 54,301
======== ========
Revision in estimated contract costs are made in the year in which
circumstances requiring the revision became known. The effect of
changes in estimates of contract costs on one contract was to increase
the net loss for 1995 by $21,000 from that which would have been
reported had the revised estimate been used as the basis for
recognition of contract costs in the preceding year.
SYSTEMS WEST, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
3. Inventories
Inventories consist of the following at June 30, 1995 and 1996:
1995 1996
------- -------
Computer parts $49,285 $63,958
Work-in-process 29,204 14,178
------- -------
$78,489 $78,136
======= =======
4. Related party transactions
Payable to officers/directors consists of the following at June 30,
1995 and 1996:
1995 1996
-------- --------
Accrued salaries $127,532 $127,532
Reimbursement of Company expenses 13,094 13,131
-------- --------
$140,626 $140,663
======== ========
5. Note payable
At June 30, 1995, the Company had a line of credit from a finance
company in the amount of $190,000, obtained under a California Export
Financing Office guarantee. The line provided pre-shipment working
capital financing against certain export purchase orders, bears
interest at the prime rate plus 3% (12% at June 30, 1995), was
repayable from the assignment of proceeds from the purchase orders.
The related promissory note matured on January 30, 1996, the finance
company obtained a first lien on all assets of the Company, and
officers of the Company had subordinated their loans from the Company
to the promissory note.
6. Stockholders' equity (deficit)
The Series A preferred stock has a $40.00 per share liquidation
preference and is convertible to common stock on an eighteen for one
basis at the option of the holders. The preferred stock may be
redeemed at any time at $40.00 per share, at the election of the Board
of Directors of the Company.
The Company has authorized but unissued shares of preferred stock
which may be issued in such series and preferences as determined by
the Board of Directors.
SYSTEMS WEST, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
6. Stockholders' equity (deficit) (continued)
In 1989, the Company's stockholders approved the adoption of a Key
Employee Stock Option Plan which provides for the granting to
officers, directors and key employees of the Company, options to
purchase up to 65,000 shares of the Company's common stock. Corporate
officers who hold "insider" stock are ineligible to participate in the
plan. As of June 30, 1995, the Company had granted qualified options
to purchase a total of 38,207 shares of its common stock to employees,
consultants and its landlord exercisable through February 1999 at $.40
to $8.00 per share. During the year ended June 30, 1996, qualified
options to purchase 11,250 shares of the Company's common stock at
prices ranging from $1.00 to $8.00 per share expired. On August 2,
1993, the Company granted non-qualified options to purchase a total of
220,000 shares of its common stock to three officers and directors of
the Company, exercisable through August 2, 1998 at $.10 per share, of
which options to purchase 20,000 shares were exercised in February
1994. On January 23, 1995, the Company granted non-qualified options
to purchase 120,000 shares of its common stock to a director of the
Company, exercisable through January 23, 2000 at $.18 per share.
7. Lease commitments
Operating leases:
The Company leases office and production space under a lease agreement
which expires July 31, 1999.
Rent expense for operating leases was approximately $39,750 and
$38,619 for the years ended June 30, 1995 and 1996, respectively.
Future minimum payments on the office lease amount to the following at
June 30:
1997 $ 33,113
1998 36,123
1999 36,123
2000 3,010
--------
$108,369
========
Capitalized lease obligations:
At June 30, 1996, the Company had capitalized leases for office and
prototype equipment. Following is a schedule of future minimum rental
payments, including interest, on the capitalized lease obligations:
SYSTEMS WEST, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
7. Lease commitments (continued)
Year ending June 30, Amount
1997 $10,645
1998 5,525
1999 2,965
-------
Total future minimum lease payments 19,135
Less amount representing interest 2,867
-------
Present value of future net minimum
lease payments 16,268
Due within one year 8,701
-------
Due after one year $ 7,567
=======
Property recorded under capital leases include the following amounts:
1995 1996
------- -------
Furniture and equipment $10,339 $10,339
Prototype equipment - 13,060
------- -------
10,339 23,399
Accumulated amortization 1,801 5,220
------- -------
Net capitalized leased property $ 8,538 $18,179
======= =======
8. Income taxes
The Company did not record an income tax provision for the years ended
June 30, 1995 and 1996 due to the utilization of a tax loss
carryforward.
The Company has net operating loss carryforwards of approximately
$1,627,000 which it may use to offset future taxable income. The
carryforwards expire as follows:
Year 2003 $88,000
2004 652,000
2005 189,000
2006 314,000
2007 148,000
2009 48,000
2010 188,000
----------
$1,627,000
==========
SYSTEMS WEST, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
8. Income taxes (continued)
Deferred tax assets result from the accrual of warranty and vacation
expenses for financial reporting purposes which were not accrued for
tax return purposes.
As of June 30, 1995 and 1996, total deferred tax assets and valuation
allowance are as follows:
1995 1996
-------- --------
Deferred tax assets $ - $ 25,000
Deferred tax assets resulting
from loss carryforward 650,000 553,000
Valuation allowance (650,000) (578,000)
-------- --------
$ - $ -
======== ========
During the year ended June 30, 1996, the Company utilized net
operating loss carryforwards of approximately $281,000 to offset
current taxable income, resulting in a current tax benefit of
$101,000.
9. Major customers and export sales
Major customers:
Customers which accounted for over 10% of revenues were as follows for
the years ended June 30:
1995 1996
---- ----
Customer A 26% -
Customer B 20% *%
Customer C 13% -
Customer D *% 23%
Customer E *% 41%
Customer F - 13%
* - Less than 10%
Export sales:
In 1995 and 1996 the breakdown of export sales by geographic area is
as follows:
1995 1996
-------- --------
Canada/Mexico $ - $ 13,000
India 186,000 -
Europe 201,000 185,000
Asia 34,000 313,000
South America - Caribbean 94,000 176,000
Total export sales $515,000 $687,000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 128,199
<SECURITIES> 0
<RECEIVABLES> 149,356
<ALLOWANCES> 14,735
<INVENTORY> 78,136
<CURRENT-ASSETS> 399,655
<PP&E> 207,023
<DEPRECIATION> 140,653
<TOTAL-ASSETS> 470,499
<CURRENT-LIABILITIES> 315,166
<BONDS> 0
<COMMON> 1,703,746
0
8
<OTHER-SE> (1,555,988)
<TOTAL-LIABILITY-AND-EQUITY> 470,499
<SALES> 1,333,477
<TOTAL-REVENUES> 1,333,477
<CGS> 614,997
<TOTAL-COSTS> 1,091,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,446
<INCOME-PRETAX> 233,889
<INCOME-TAX> 0
<INCOME-CONTINUING> 233,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233,889
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
