Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended: September 30, 1998
Commission file number: 33-15682-LA
Exact name of small business issuer as specified 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
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
November 6, 1998: 1,321,237
This Form 10-QSB is not covered by an accountant's report
Page 1 of 11
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
September 30, 1998 (unaudited)
and June 30, 1998 Page 3
Statements of Operations
Three months ended September 30,
1998 and 1997 (unaudited) Page 5
Statements of Cash Flows
Three months ended September 30,
1998 and 1997 (unaudited) Page 6
Notes to Financial Statements
(unaudited) Page 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations Page 9
PART II. OTHER INFORMATION Page 10
SIGNATURES Page 11
EXHIBITS: Exhibit 27 - Financial Data Schedule
Page 2 of 11
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
ASSETS
September 30, June 30,
1998 1998
(unaudited)
______________________________________
<S> <C> <C>
CURRENT ASSETS
Cash 12,534 23,952
Receivables, net of allowance for
doubtful accounts 58,104 52,615
Inventory
Costs & estimated earnings on
long-term contracts 542,960 359,580
Work-in-process 3,911 64,874
Computer parts 119,017 58,823
Prepaid expenses 5,144 5,461
------- -------
Total current assets 741,670 565,305
FURNITURE AND EQUIPMENT, net of
75,720 and 76,596 of
accumulated depreciation 28,830 27,954
PROTOTYPE EQUIPMENT, net of
134,580 and 126,177 of
accumulated depreciation 31,153 39,343
Deposits 3,774 3,774
------- -------
805,427 636,376
======= =======
Page 3 of 11
<PAGE>
<CAPTION>
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
1998 1998
(unaudited)
________________________________
CURRENT LIABILITIES
Note payable 650,000 467,500
Accounts Payable 142,488 145,138
Accrued Liabilities 92,622 104,868
Payables - officers/directors 164,439 188,688
Current portion of capitalized
lease obligation 6,144 5,768
------- -------
Total current liabilities 1,055,693 911,962
Capitalized lease obligation 5,107 6,889
STOCKHOLDERS' EQUITY
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,
1,321,237 shares issued and
outstanding 1,733,316 1,723,316
Additional paid-in capital 160,435 160,435
Accumulated deficit (2,149,132) (2,166,234)
--------- ---------
Total stockholders' equity (255,373) (282,475)
--------- ---------
805,427 636,376
========= =========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Page 4 of 11
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
September 30
1998 1997
_____________________________
<S> <C> <C>
Revenues
Sales 338,247 89,991
Costs and expenses
Cost of sales 160,920 41,311
Marketing 45,300 43,769
Research and development 23,002 49,329
General and administrative 91,923 60,049
------- -------
321,145 194,458
------- -------
Net income (loss) 17,102 (104,467)
======= =======
Net income (loss) per common share .02 (.098)
Weighted average common shares 1,091,000 1,066,237
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Page 5 of 11
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended September 30
1998 1997
____________________________
<S> <C> <C>
Cash flows from operating activities:
Net income <loss> 17,102 (104,467)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 7,527 7,527
(Increase) decrease in receivables (5,489) (5,591)
(Increase) decrease in costs and
estimated earnings on long-term
contracts (183,380) (49,404)
(Increase) decrease in inventories 769 444
(Increase) decrease in prepaid
expenses/deposits 317 --
Increase (decrease) in accounts
payable (2,650) (6,692)
Increase (decrease) in accrued
liabilities and customer deposits (12,246) 6,732
Increase (decrease) in payables--
officers/directors (24,249) 18,750
Increase (decrease) in deferred
revenue -- --
------- -------
Net cash provided by (used in)
operating activities (202,299) (132,701)
Cash flows from investing activities
Acquisition of prototype equipment (213) (40)
Decrease in other assets -- 4,000
------- -------
Net cash used in investing
activities (213) 3,960
------- -------
Cash flows from financing activities
Increase on line of credit 182,500 56,000
Payments on capital lease (1,406) (3,207)
Investment in Common Stock 10,000 --
------- -------
Net cash used in financing
activities: 191,094 52,793
------- -------
Page 6 of 11
<PAGE>
Net increase (decrease) in cash and
cash equivalents (11,418) (75,948)
Cash and cash equivalents at beginning
of period 23,952 85,092
------- -------
Cash and cash equivalents at end of
period 12,534 9,144
======= =======
Supplemental disclosures of cash flow
information
Cash paid during the period for
interest 35,996 6,088
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Page 7 of 11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by
the Company without audit. In the opinion of management, the
accompanying unaudited financial statements contain all
adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation of the Company's financial
position as at September 30, 1998 and 1997 and the results of its
operations, changes in its stockholders' equity and cash flows
for the respective periods then ended. Management has elected to
omit certain disclosure required by generally accepted accounting
principles. The Company's Form 10-KSB for fiscal year ended June
30, 1998 includes audited financial statements as of June 30,
1998 and 1997, complete with the auditors' report and footnotes
to the financial statements, and should be read in conjunction
with this Form 10-QSB.
2. STOCKHOLDERS' EQUITY
On May 25, 1993, the Company's shareholders approved a 1 for 400
reverse split of the Company's common stock and preferred stock,
and increased the authorized capital stock of the Company to
5,000,000 shares of no par value common stock and 1,000,000
shares of $.01 par value preferred stock. Retroactive effect has
been given to all share and per share data in the accompanying
financial statements.
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.
Page 8 of 11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Systems West, Inc. recorded a net income of $17,102 on net
revenue of $338,247 for the quarter ended September 30, 1998 as
compared to a net loss of $104,467 on net revenue of $89,991 for
the comparable quarter of the previous year. In the fiscal
quarter ending March 31, 1998 the Company commenced work on a
major South American project with total contracted revenue
exceeding $1.1 million. A significant part of the revenue
recorded in fiscal quarter one (1) 1999, was derived from this
Contract. As was previously reported, the softness in the
Japanese, Asian and South American financial sectors is still
adversely affecting the award of several major contracts. As a
result, management has significantly reduced its headcount and
operating expenses in this first quarter. The backlog at
September 30, 1998 of $369,000 is primarily the unrecognized
revenue on the South American project.
FINANCIAL CONDITION
At September 30, 1998, the Company had a net working capital
deficit of $149,267 as compared to a working capital deficit of
$169,592 at September 30, 1997. The Company continues to be
constrained by a shortage of working capital. This seriously
hampers the marketing and engineering development work required
to capitalize on the existing worldwide market opportunities.
Project working capital requirements are supplemented by export
loans guaranteed by the California Export Finance Office. At
September 30, 1998, the Company has borrowed $650,000 under this
program in order to fund the South American project.
Systems West continues to solicit investors and strategic
partners, although no definitive investment opportunities have
materialized as of this report.
Page 9 of 11
<PAGE>
PART II. OTHER INFORMATION
No information is included in answer to Items 1, 2, 3, 4, 5, or 6
under Part II as the Items are either not applicable or, if
applicable, the answer is negative.
Forward-Looking Statements
The statements contained in this report which are not historical
in nature are forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934 and the Company intends that such
forward-looking statements be subject to the safe harbors for
such statements under such sections. The forward-looking
statements herein are based on current expectations that involve
a number of risks and uncertainties. Such forward-looking
statements are based on numerous assumptions, including, but not
limited to, the assumption that the Company can successfully
compete with larger, more established competitors; that the
market segments targeted by the Company will continue to grow;
that pricing and other competitive pressures worldwide on
significant projects will not cause margins to erode
significantly; that the Company will complete its major project
cost-effectively to budgetary expectations; and that currency
fluctuations worldwide will not cause adverse pricing pressures.
The foregoing assumptions are based on judgments with respect to,
among other things, future economic, competitive and market
conditions, and future business decisions, all of which are
difficult or impossible to predict accurately and many of which
are beyond the Company's control. Accordingly, although the
Company believes that the assumptions underlying the forward-
looking statements are reasonable, any such assumption could
prove to be inaccurate and therefore there can be no assurance
that the results contemplated in forward-looking statements will
be realized. The forward-looking statements are subject to risks
and uncertainties that could cause actual results to differ
materially from those set forth in or implied by the forward-
looking statements, including, but not limited to, the risk that
competitive conditions in the industry will change adversely or
otherwise become more intense; that changes in technology or
customer preference could cause the growth rate in the markets
the Company serves to slow or halt; that demand for the Systems
West product line will slow; that worldwide pricing and other
competitive pressures could adversely affect the Company's
margins; or that currency fluctuations could result in
international pricing pressures or could reduce the value in U.S.
dollar terms of the Company's international sales.
Page 10 of 11
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
SYSTEMS WEST, INC.
(Registrant)
11/9/98 Kenneth W. Ruggles
(Date) (Signature)
11/9/98 Douglas S. Timms
(Date) (Signature)
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 12,534
<SECURITIES> 0
<RECEIVABLES> 60,204
<ALLOWANCES> (2,100)
<INVENTORY> 122,929
<CURRENT-ASSETS> 741,670
<PP&E> 270,283
<DEPRECIATION> 210,300
<TOTAL-ASSETS> 805,427
<CURRENT-LIABILITIES> 1,055,693
<BONDS> 0
<COMMON> 1,733,316
0
8
<OTHER-SE> 160,435
<TOTAL-LIABILITY-AND-EQUITY> 805,427
<SALES> 338,247
<TOTAL-REVENUES> 338,247
<CGS> 160,920
<TOTAL-COSTS> 321,145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,102
<INCOME-TAX> 17,102
<INCOME-CONTINUING> 17,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,102
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
