Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended: December 31, 1999
Commission file number: 33-15682-LA
Systems West, Inc.
---------------------------------------------------------------
Exact name of small business issuer as specified in its charter
Colorado 94-3026545
--------------------------------- -------------------
State or other jurisdiction IRS Employer
of incorporation or organization: Identification No.
Address of principal executive offices:
3239 Imjin Road, Marina, CA 93933
Issuer's telephone number: (831) 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:
February 4, 2000: 1,386,237
Page 1 of 11
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
December 31, 1999 (unaudited)
and June 30, 1999 Page 3
Statements of Operations Three months and
six months ended December 31, 1999 and
1998 (unaudited) Page 5
Statements of Cash Flows
Six months ended December 31,
1999 and 1998 (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>
BALANCE SHEETS
ASSETS
December 31, June 30,
1999 1999
(unaudited)
-----------------------
CURRENT ASSETS
Cash 7,378 1,200
Receivables, net of allowance for
doubtful accounts 61,161 160,402
Inventory
Costs & estimated earnings on
long-term contracts -- --
Work-in-process 8,802 42,987
Computer parts 70,957 43,477
Prepaid expenses 5,664 3,201
------- -------
Total current assets 153,962 251,267
FURNITURE AND EQUIPMENT, net of
$86,150 and $81,978 of
accumulated depreciation 19,874 22,571
PROTOTYPE EQUIPMENT, net of
$161,785 and $150,903 of
accumulated depreciation 5,116 15,998
Deposits 3,774 3,774
------- -------
182,726 293,610
Page 3 of 11
<PAGE>
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1999 1999
(unaudited)
-----------------------------
CURRENT LIABILITIES
Deposits 80 --
Note payable 108,871 209,514
Accounts Payable 137,308 134,793
Accrued Liabilities 121,023 187,489
Payables - officers/directors 54,610 34,354
Current portion of capitalized
lease obligation 1,027 1,977
Deferred Revenue/LT Contracts -- --
---------- ----------
Total current liabilities 422,919 568,127
Capitalized lease obligation 5,328 4,411
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,
1,386,237 shares issued and
outstanding 1,745,016 1,745,016
Additional paid-in capital 324,842 324,842
Accumulated deficit (2,315,387) (2,348,794)
---------- ----------
Total stockholders' equity (245,521) (278,928)
---------- ----------
182,726 293,610
See accompanying notes to financial statements.
Page 4 of 11
<PAGE>
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
December 31 December 31
1999 1998 1999 1998
-----------------------------------------------
Revenues
Sales 180,283 303,590 370,584 641,837
Costs and expenses
Cost of sales 78,838 190,197 172,840 351,117
Marketing 28,086 52,465 51,024 97,765
Research and
development -- 12,234 6,080 35,236
General and
administrative 54,703 53,609 107,234 145,532
---------- ---------- ---------- ----------
161,627 308,505 337,178 629,650
Net income (loss) 18,656 (4,915) 33,406 12,187
Net income (loss)
per common share .02 (--) .03 .01
Weighted average
common shares 1,386,237 1,321,237 1,386,237 1,321,237
See accompanying notes to financial statements.
Page 5 of 11
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended December 31
1999 1998
----------------------------
Cash flows from operating activities:
Net income (loss) 33,406 12,187
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 15,054 15,054
(Increase) decrease in receivables 99,241 (527,043)
(Increase) decrease in costs and
estimated earnings on long-term
contracts -- 221,580
(Increase) decrease in inventories 6,705 (43,565)
(Increase) decrease in prepaid
expenses/deposits (2,463) --
Increase (decrease) in accounts
payable 2,515 (1,616)
Increase (decrease) in accrued
liabilities and customer deposits (66,386) 175,383
Increase (decrease) in payables--
officers/directors 20,256 (24,249)
Increase (decrease) in deferred
revenue -- (29,642)
-------- --------
Net cash provided by (used in)
operating activities 108,328 (201,911)
Cash flows from investing activities
Acquisition of furniture & equipment (1,474) (213)
Acquisition of prototype equipment -- (1,167)
-------- --------
Net cash used in investing
activities (1,474) (1,380)
-------- --------
Cash flows from financing activities
Proceeds from line of credit 219,999 182,500
Payments on line of credit (320,642) --
Payments on capital lease (33) (2,839)
Proceeds from stock sale -- 10,000
-------- --------
Net cash used in financing
activities: (100,676) 189,661
Page 6 of 11
<PAGE>
Net increase (decrease) in cash and
cash equivalents 6,178 (13,630)
Cash and cash equivalents at beginning
of period 1,200 23,952
------- -------
Cash and cash equivalents at end of
period 7,378 10,322
Supplemental disclosures of cash flow
information
Cash paid during the period for
interest 7,023 54,791
See accompanying notes to financial statements.
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 December 31, 1999 and 1998 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,
1999 includes audited financial statements as of June 30, 1999 and 1998,
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. posted a net income of $18,656 on net sales of $180,283 for
the second quarter of fiscal year 2000, and a cumulative net profit of $33,406
on net sales of $370,584 for the six months ended December 31, 1999. Although
revenues for the Company continue to be weak, the corporate-wide restructuring
initiated at fiscal year end June 30, 1999 has materially reduced operating
expenses and facilitated a profitable quarter. Ongoing, the Company expects to
operate at modest revenue levels reflective of its existing back orders, support
current business commitments and aggressively pursue additional capital in order
to return Systems West to more active operating levels, particularly in sales
and marketing.
The Company's back orders at December 31, 1999 approximate $75,000 representing
South American and Pacific Rim projects deliverable in the third quarter.
FINANCIAL CONDITION
At December 31, 1999, the Company had a working capital deficit of $(268,957)
compared to a working capital deficit of ($314,011) at December 31, 1998.
The current working capital requirements are supplemented by export loans
guaranteed by the Small Business Administration and a $50,000 subordinated two
year, 8% interest note convertible at $.50 per share from a private investor.
However, the Company continues to be severely constrained by shortfalls in
working capital needed to support normal levels of operating activities.
In addition to the borrowings mentioned above, the Company continues to solicit
investors and/or strategic partners to enable it to capitalize on its core
technology opportunities in the significant global market. To date, definitive
investment or other opportunities have yet to materialize.
The Board and management have serious doubts concerning the Company's ability to
sustain successful operations and return the operation to annual profitability
without a material capital infusion.
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)
9/11/00 /s/ Kenneth W. Ruggles
------- --------------------------------
(Date) (Signature)
9/11/00 /s/ Douglas S. Timms
------- --------------------------------
(Date) (Signature)
Page 11 of 11
